On December 16, 2016, the Massachusetts Department of Environmental Protection (MassDEP) released draft rules that would impose new greenhouse gas (GHG) requirements on the electric energy sector, gas distribution systems, and certain aspects of the transportation sector. Written comments on the proposed regulations are due on or before February 24, 2017, and public hearings are currently scheduled for February 6 and February 8, 2017.

Under the Global Warming Solutions Act, which was enacted by the state in 2008, MassDEP was required to promulgate regulations by January 2012 establishing declining annual aggregate emission limits for sources or categories of sources that emit greenhouse gases. MassDEP did not promulgate these regulations and was sued by a group of residents seeking to compel MassDEP to act.

The case made its way to the Supreme Judicial Court, which ruled in May 2016 in Kain v. MassDEP that the statute imposed a clear requirement and was binding on the agency and that MassDEP must, therefore, promulgate regulations that “impose a limit on [GHG] emissions that may be released, limit the aggregate emissions released from each group of regulated sources or categories of sources, set emission limits for each year, and set limits that decline on an annual basis.” See our analysis of that case here. Following that decision, in September 2016, Governor Baker issued Executive Order 569, which directed MassDEP to undertake a variety of GHG-related actions and finalize new GHG regulations by August 11, 2017. MassDEP engaged in a number of quick stakeholder meetings, and the draft rules released on December 16 represent MassDEP’s efforts to synthesize the information collected from stakeholders and to comply with both of these mandates.

The Kain decision made clear that MassDEP had the discretion to select which GHG source categories it would regulate, and the draft regulations propose to address a handful of specific GHG sources. Below is our brief summary and initial analysis of the proposal:

Electric Power Sector

MassDEP has proposed several independent GHG emissions reduction measures for the electric power sector, the most significant of which are a new statewide “Clean Energy Standard” and a new Cap-and-Trade program applicable to all electrical generating units (EGUs) located in Massachusetts. Another new regulation would impose emissions limits on electric switchgear using sulfur hexafluoride (SF₆).

Clean Energy Standard

The proposed Clean Energy Standard (CES) would work like Massachusetts’ existing Renewable Portfolio Standard (RPS) by requiring all sellers of retail electricity in Massachusetts (including utilities, suppliers, and Municipal Light Plans) to satisfy demand with an increasing percentage of clean power. The CES would be similar to the state’s existing RPS but would include technologies that are not eligible under the RPS and would set more aggressive percentage-based targets, increasing to 80% clean generation by 2050. Clean generation would be defined as generation with at least 50% lower GHG emissions than “the most efficient” natural gas-fired power plant, on a lifecycle basis, and could include nuclear power, large hydro, certain biomass, and other technologies.

Compliance with the CES would be managed through submission of Clean Energy Credits (CECs), using the same system, NEPOOL-GIS, that is currently used to manage Renewable Energy Credits (RECs). Any RECs eligible to be used for compliance with Massachusetts RPS Class I requirements would also be eligible to be used for compliance with the CES, and according to MassDEP, the current RPS standard would account for more than half of the CES standard in each compliance year. Nonetheless, the new CES program would impose significant new reporting and compliance obligations on all electricity suppliers in Massachusetts.

Cap-and-Trade Program

MassDEP has also proposed a new cap-and-trade program that would set new mass-based CO₂e emissions limits that decline on an annual basis through 2050. The new program would apply to all electric generating facilities in Massachusetts. Although the Regional Greenhouse Gas Program (RGGI) already imposes GHG emissions caps on most of the electric power sector, MassDEP believes that a new type of program is necessary to satisfy the Global Warming Solutions Act, as interpreted by the Kain decision, which mandates GHG emissions reductions within Massachusetts’ borders. To that end, MassDEP has proposed the following declining limits on annual state-wide GHG emissions applicable to in-state electricity generation:

The proposed program is not an ordinary cap-and-trade program. Instead of auctioning allowances (a typical approach taken by RGGI and the state of California), the Massachusetts program would set annual individual emissions limits for existing facilities, based on historic output. There also are provisions for individual limits for new facilities. Facilities emitting less than their target in a given year, or that are retired, would generate “Over Compliance Credits” (OCCs) that the facility could bank for future compliance years or transfer (sell) to other entities for compliance purposes.

While MassDEP believes that its proposed Cap-and-Trade program will compliment RGGI and not impose significant new economic impacts, it will nonetheless impose significant compliance obligations on fossil-fuel fired EGUs in Massachusetts. MassDEP is specifically seeking public comment on numerous aspects of this program, including:

• The appropriate mechanisms for establishing facility-based limits.
• Whether MassDEP should adopt a system of allowance allocations or allowance auctions to distribute compliance credits, rather than relying on facility limits and the OCC approach; and
• Additional flexibility options that are not currently proposed (e.g., credit borrowing, offsets, multi-year compliance periods).

SF6 Emissions Limits

MassDEP has also proposed to amend 310 CMR 7.72 to achieve further reductions in emissions of SF₆ from gas-insulated switchgear. The proposed rule would require all newly-manufactured gas-insulated switchgear (defined as equipment that is put into use after January 1, 2015) to have no greater than a 1.0% maximum annual leak rate. Notably, the proposed rule would also impose an annual, declining mass-based limit on aggregate SF₆ emissions for each company subject to rule.

Natural Gas Distribution

MassDEP has also proposed a new regulation aimed at reducing methane (CH₄) emissions from natural gas distribution mains and services in the Commonwealth. The new rules would apply to all active mains and services of gas system operators in Massachusetts with a Gas System Enhancement Plan (GSEP) approved by the Massachusetts Department of Public Utilities. The regulation would impose declining annual limits on methane emissions for each gas operator, for calendar years 2018, 2019 and 2020. MassDEP has requested comment on whether these annual limits should extend through the final year of each company’s current GSEP (which range from 2022 to 2038). According to MassDEP, these new provisions will not require GHG reductions beyond those expected from existing GSEPs. It appears that MassDEP is essentially codifying the requirements of existing GSEPs in an attempt to satisfy the requirements of the Global Warming Solutions Act and the Kain decision.

Transportation

MassDEP is proposing several new or amended rules targeting GHG emissions from the transportation sector. Most notably, MassDEP is proposing declining, mass-based GHG emissions limits on both “aggregate transportation” in Massachusetts and on the specific operations of the Massachusetts Department of Transportation (MassDOT) and the Massachusetts Bay Transportation Authority (MBTA).

The proposed rules define “aggregate transportation” emissions as the “total GHG emissions . . . from the multimodal surface transportation system and its facilities including the highway and transit networks.” The proposed rules direct MassDOT to measure and report such aggregate emissions and achieve the following targets:

The proposal would also slightly modify the MassDOT consultation process for Metropolitan Planning Organizations (MPOs), Regional Transportation Plans (RTPs), Transportation Improvement Programs (TIPs), and State Transportation Improvement Programs (STIPs), placing more emphasis on quantifying and evaluating GHG emissions related to “aggregate transportation.” While light on specifics, the proposed rule and MassDEP materials indicate that the agency expects GHG emissions reductions to occur as a result of improved transportation planning.

The proposal also would impose GHG emissions caps on MassDOT operations, including MBTA facilities, as follows:

MassDEP anticipates that MassDOT will achieve these targets by employing lower emissions trains and buses, more reliable service, and lower GHG intensity at MBTA facilities (such as subway station heating).

Finally, MassDEP has proposed to impose new GHG emissions standards on state-owned vehicles. These standards build on an existing fuel efficiency standard for state fleet vehicles, which became effective on September 26, 2016. While these provisions are not expected to move the needle on state-level GHG emissions (state-owned vehicles represent less than 0.01% of GHG emissions in Massachusetts), MassDEP believes that these provisions will allow state government to lead by example and help support increased use of electric vehicles and other low-emitting vehicles by the private sector.

Summary

The GHG regulations proposed by MassDEP for natural gas distribution systems and transportation appear, in large, to reflect existing policies and programs, such as Gas System Enhancement Plans and the MassDOT consultation program for transportation planning. By codifying these programs into hard GHG reduction targets, MassDEP is attempting to meet the Supreme Judicial Court’s mandate in Kain, which required quantified declining in-state GHG reductions.

Rules for the electric generation sector are another story and would impose two new programs that both significantly overlap with and expand upon existing regulatory programs (the Massachusetts RPS and RGGI). Again, these new programs appear largely driven by the requirement to quantify and achieve GHG emissions within Massachusetts.

The scope of these programs and the lack of linkage to transportation or any other economic sector leaves open the question of whether the Massachusetts Legislature or MassDEP may follow these rules with other, economy-wide or sector-based programs. Additional details on the proposed GHG rules and public hearings (along with instructions for submitting comments) are available on MassDEP’s website by following this link.