NE States Join Forces in Fight Against Carbon Emissions

Last fall, the Regional Green-house Gas Initiative (RGGI), a cooperative effort by 10 Northeastern and Mid-Atlantic states, went live as the first mandatory, market-based CO₂ emissions reduction program in the U.S. The 10-state RGGI agreement consists of participation from Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont.

The intent of the agreement is to cap CO₂ carbon dioxide emissions from electricity generation—while at the same time minimizing impacts to electricity ratepayers and maximizing consumer benefits. It’s anticipated that RGGI will reduce CO₂ emissions at the lowest possible cost while expanding the deployment of energy efficiency, renewable energy, and clean energy technologies. The 10-state consortium is aiming for a 10% reduction in these emissions by 2018.

One distinction of RGGI is that nearly all CO₂ allowances issued by participating states will be auctioned instead of distributed for free to regulated power plants. They will be auctioned in a Web-based environment.

“This effort took five years to go live,” said Nancy Seidman, Massachusetts’ deputy assistant commissioner for climate strategies. “The Northeast has long had a reputation for being forward-thinking when it comes to environmental protection and climate issues—and it’s often produced ground breaking efforts.”

The first RGGI allowance auction was held last September 25. Participation in the first auction consisted of 59 separate entities submitting bids to purchase more than four times the available supply of allowances in the auction. Bidders must present cash upfront, and the process takes eight business days for the funds to clear.

Potomac Economics was retained to serve as the market monitor for the RGGI CO₂ allowance market. In this role, Potomac monitors the conduct of the market participants in both the primary auctions and the secondary market to identify indications of market manipulation or collusion.

Residual benefits
In addition to buying and selling carbon credits, the auction is perceived to have other benefits as well. Reinvesting auction revenue in the region is expected to provide significant consumer benefits. The reinvestment of revenue in local economies will help businesses and homeowners to control their energy costs and create new jobs in the clean energy sector. Improving electricity end-use efficiency is a low-cost means of avoiding CO₂ emissions.

End-use energy efficiency investments provide net economic benefits to ratepayers through bill savings, less need for investment in transmission and distribution, and lower wholesale electricity prices.

How RGGI, Cap-and-Trade Works
RGGI is composed of individual CO₂ Budget Trading programs in each of the 10 participating states. The 10 programs are implemented through state regulations, based on a RGGI Model Rule, and are linked through CO₂ allowance reciprocity. Regulated power plants will be able to use a CO₂ allowance issued by any of the 10 participating states to demonstrate compliance with the state program governing their facility. Taken together, the 10 individual state programs will function as a single regional compliance market for carbon emissions.

To reduce emissions of greenhouse gases, the RGGI participating states are using a market-based cap-and-trade approach that includes:

Establishing a multi-state CO₂ emissions budget (cap) that will decrease gradually until it is 10 percent lower than at the start;
Requiring electric power generator to hold allowances covering their emissions of CO₂;
Providing a market-based emissions auction and trading system where electric power generators can buy, sell and trade CO₂ emissions allowances;
Using the proceeds of allowance auctions to support low-carbon-intensity solutions, including energy efficiency and clean renewable energy, such as solar and wind power; and
Employing offsets (greenhouse gas emissions reduction or sequestration projects at sources beyond the electricity sector) to help companies meet their compliance obligations.

RGGI’s phased approach means that reductions in the CO₂ cap will initially be modest, providing predictable market signals and regulatory certainty. Electricity generators will be able to plan for and invest in lower-carbon alternatives and avoid dramatic electricity price impacts.

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