The State of Maine: Efforts to Sell Carbon Credits Obtained from Weatherization

Like many corporate entities and governmental bodies, Maine has enthusiastically embraced the movement to limit, reduce, or remove greenhouse gas (“GHG”) emissions from the environment. Section 576, Title 38 of the Maine Revised Statutes lays the foundation for Maine’s GHG goals, which includes the reduction of GHG emissions to 10% below 1990 levels by January 1, 2020.  To accomplish its goals, Maine has adopted a variety of programs.  The most publicized program is the Regional Greenhouse Gas Initiative (“RGGI”).  RGGI is the first mandatory cap-and-trade program in the United States. A total of ten states, including Maine, are participating in RGGI. The remaining nine states are Connecticut, Delaware Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. As of July 2010, approximately $662 Million has been generated from the sale of approximately 256 Million RGGI allowances. Individually, Maine has generated approximately $20.4 Million from the sale of approximately 7.9 Million RGGI allowances.

Another example of Maine’s carbon emissions reduction effort are Maine’s efficiency trust programs (the “Trust”). The Trust includes: (i) the Efficiency Maine Trust established for the purpose of administering programs for energy efficiency and alternative energy resources to help individuals and businesses meet their energy needs at the lowest possible cost; and (ii) the Energy and Carbon Savings Trust established to support the goals and implementation of Maine’s carbon dioxide (“CO₂”) cap-and-trade programs.

One notable target of the Trust is to weatherize 100% of residences, 50% of businesses, and reduce Maine’s consumption of liquid fossil fuels by at least 30% by 2030. Other targets include: capturing all cost-effective energy efficiency resources available for electric and natural gas utility ratepayers; and reducing greenhouse gas emissions from the heating and cooling of buildings in Maine consistent with the statewide goals of reducing such emissions ultimately to 75-85% below 2003 levels.

The Maine State Housing Authority (“MaineHousing”) “is an independent state agency that bridges public and private housing finance, combining them to benefit Maine’s low and moderate-income people.” MaineHousing operates a variety of programs, including the Weatherization and Central Heating Improvement Programs. The purpose of these programs is to finance energy related improvements, repairs or replacements for low income renters and homeowners, such as caulking, insulation, and weather-stripping.

Under the American Recovery and Reinvestment Act, MaineHousing received $41.9 million to scale-up existing weatherization efforts. According to the U.S. Department of Energy (Main Recovery Act Snapshot), Maine expects to weatherize more than 4,400 homes within three years, and as of April 30, 2010, Maine has weatherized 1,582 homes.

MaineHousing came up with the original idea of linking weatherization with the sale of carbon credits. According to MaineHousing, weatherization will save two tons of CO₂ per weatherized home per annum. MaineHousing estimates that it might be able to sell 8,000 carbon credits on an annual basis.

Before MaineHousing can offer carbon credits derived from weatherization for sale on the carbon market, its weatherization project must be approved by the Voluntary Carbon Standard Association under the Voluntary Carbon Standard Program (“VCS Program”).

The VCS Program “was developed to provide a rigorous, trustworthy and innovative global standard and validation and verification program for voluntary greenhouse gas offsets,” according to the VCS Association. VCS Program methodologies include:

• applicability criteria that defines the area of project eligibility;
• a process that determines whether the project is additional or not;
• determination criteria for the most likely baseline scenario; and
• all necessary monitoring aspects related to monitoring and reporting of accurate and reliable GHG emission reductions or removals.

Earlier this year, as part of the approval process, Maine released The Methodology for the Weatherization of Single Family and Multi-family Buildings (“Maine’s Methodology”). Because Maine’s Methodology is new, it must undergo a Double Approval Process, which consists of: (i) initial independent assessment by two VCS-approved validators, and (ii) a final approval by the VCS Association if both validators provide a positive assessment.

One validator is selected by the proponent. The other validator is selected by the VCS Secretariat. The job of the validator is to review the methodology for compliance with the VCS and the Program Guidelines.  In particular, validators are looking to make sure that CO₂ reductions actually exist and are verifiable and eligible for sale in the carbon market.

On July 6, 2010, MaineHousing announced that First Environment, a validator, has approved Maine’s Methodology. While Maine’s ability to sell carbon credits from the weatherization of residence has moved a major step closer to reality by this initial approval, Maine still needs to overcome the challenge of obtaining a second approval from a validator and obtaining VCS Association’s final approval. Additionally, carbon credit traders and buyers will also need to become comfortable with Maine’s innovative project.

Assuming that Maine’s Methodology is approved by all the necessary parties, the fact still remains that Maine will only have an estimated 8,000 carbon credits per year at a clearing price that is yet to be determined. RGGI allowances have sold at a one time high of $3.51 and a consistent low of about $1.87 per allowance. Using RGGI clearing prices as a baseline, it appears that there really isn’t much revenue generation capability for the weatherization project.

While future developments, awareness and movements in the carbon market will be the driving force in determining whether Maine’s innovative idea is financially worth the effort and the time invested by the State, the innovative program is certainly newsworthy and certainly appeals to the general public because it creates awareness about the benefits of weatherization and incentivizes the populace to undertake weatherization improvements to their homes and generally become more familiar with GHG and carbon credit trading.

Tricia Foley is an attorney at law with Day Pitney LLP.