Carbon Cap Proposal Reflects Nine States’ Compromise

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By Gerald B. Silverman

A proposal to raise the carbon emissions cap for Northeastern electricity generators marks a compromise between states with aggressive climate-change goals, such as Massachusetts and New York, and more conservative states such as Maine and New Hampshire.

The nine-state Regional Greenhouse Gas Initiative unveiled a long-awaited proposal Aug. 23 that called for reducing the cap by 30 percent by 2030 compared to 2020 levels. The initiative relies on emissions trading—akin to the European Union’s approach, as well as some U.S. states including California—in which emitters must purchase allowances or permits for each ton of greenhouse gas they emit.

The RGGI emissions cap would be lowered from 75 million tons of carbon in the nine-state region in 2021 to 54.6 million tons in 2030. The program includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont.

Coalition Backed Similar Proposal

The states were considering three scenarios to reduce the cap after 2020, when the current cap expires. They settled on a 3 percent per year reduction, rather than 2.5 percent per year or 3.5 percent per year.

Utilities and other industries in affected states didn’t immediately respond Aug. 23 to Bloomberg BNA’s requests for comment. But in comments filed July 26 as part of the states’ review, a coalition of environmental groups and utilities backed an option that closely mirrors the initiative’s proposal.

The coalition includes Calpine Corp., Exelon Corp., and Public Service Electric & Gas Company, in addition to the Natural Resources Defense Council and Acadia Center.

RGGI has been considering changes in the program for more than 18 months. The new proposal will be subject to public comments and then form the basis for a model rule that would go to each state for approval.

Maine, New Hampshire

The proposal includes a new emissions containment reserve mechanism to address steep declines in carbon prices. It also changes a similar mechanism that has been in place for years to control upward spikes in carbon allowance prices.

In an unusual divide between the initiative’s unified states, Maine and New Hampshire don’t intend to implement the new reserve mechanism, according to a RGGI statement.

The coalition of industry and environmental groups, in its July comments, supported the addition of the new reserve mechanism.

William M. Shobe, director of the Center for Economic and Policy Studies at the University of Virginia, applauded the new reserve mechanism, which will automatically retire carbon allowances when prices hit a certain trigger level.

He said the initiative would be the first cap-and-trade program to use such a mechanism, but other programs could follow.

“The beauty of the ECR [emissions containment reserve] mechanism is that it will get built into market expectations about future cap stringency,” Shobe told Bloomberg BNA in an email.

The reserve “makes it less likely that it will be invoked because traders can anticipate the reduced future supply of allowances and this will be reflected in a higher price today,” he said.

Reaction from Environmentalists

The RGGI proposal was applauded by some environmental groups who have been critical of the Trump administration’s climate policies.

“This agreement of bipartisan states in a new phase of RGGI demonstrates states’ commitment to a clean energy future despite setbacks at the federal level,” Vicki Arroyo, executive director of the Georgetown Climate Center, said in a statement.But the group Environment America said it didn’t go far enough.

“While the states are moving in a positive direction, this proposal falls short of what’s needed to truly tackle the climate crisis,” it said in a statement.

—With assistance from Abby Smith.

To contact the reporter on this story: Gerald B. Silverman in Albany, N.Y. at gsilverman@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

For More Information

Further information on the proposal is available at http://src.bna.com/rU6.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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