Carbon trading program gets a makeover

Author Sam Brock, Reporter

The oldest US cap-and-trade program for CO2 emissions is poised to become increasingly relevant in the next decade, as states look to slash their contributions to climate change.

The Regional Greenhouse Gas Initiative (RGGI), which started a decade ago, will evolve in the 2020s, as more states join the CO2 market and the program’s members implement new policies to lower emissions. Meanwhile, states continue to ratchet up their climate policy commitments, underlining the importance of cap-and-trade as a means to achieve meaningful emissions reductions.

Nine states in the northeast and mid-Atlantic are members of RGGI, which covers CO2 emissions produced by power plants. New Jersey will join next year, increasing the range of the program. Virginia is poised to join the market in the coming years, while Pennsylvania is considering becoming the market’s largest member.

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The addition of new members should help increase trading in the RGGI market and reduce the overall costs of complying with the program’s CO2 limits, by allowing the states to find the lowest-cost source of emissions reductions.

From 2021-2030, the RGGI states have agreed to reduce the program’s CO2 limit by 30pc, building on the 47pc CO2 reduction the states have already achieved for their power plants since 2008. The states have also agreed to add a new mechanism, called an emissions containment reserve, to the market in 2021. The reserve is meant to speed CO2 reductions by keeping supply and demand dynamics in balance, in the case that emissions fall faster than anticipated.

Recently, many of the RGGI states have committed or recommitted to ambitious targets to address climate change, such as reducing economy-wide greenhouse gas (GHG) emissions by 80pc by 2050. The framework the states have established for the 2020s ensures that RGGI will remain a key part of that effort.

RGGI alone will not be enough for the states to achieve their larger goals, since power plants are no longer the main emitters of GHGs in the region. Instead, many of the northeast US states are considering creating a separate cap-and-trade program for the transportation sector, the largest source of CO2 in the region and across the country.

That program could work in tandem with RGGI to help the states use markets to drive emissions lower. Reducing emissions in the transportation sector will require electrification of cars and trucks, and that will make reducing emissions from power plants that much more critical.

Moving off gasoline and diesel for transportation, in favor of electrons, will only get the states so far down the road to decarbonization if their generators are still relying on fossil fuels like natural gas. That should help preserve RGGI’s role as it enters a new decade.

What’s next for the North American environmental markets?

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