A collection of U.S. northeastern states already have a regional cap-and-trade program for major power plants. Now, the region is pursuing a similar approach for transportation, an ambitious and challenging endeavor, but one that is an outgrowth of frustration with inaction at the federal level.
The aim of the Transportation and Climate Initiative, as the program is called, would be to reduce greenhouse gas emissions (GHG) from cars and trucks while structuring the program in such a way that it leads to net economic and social benefits. In essence, emissions would be capped and a carbon market would allow the buying and selling of permits.
How the proceeds would be used has not yet been decided, but likely would be reinvested into any number of programs, including “public transit, transit-oriented development, zero-emission vehicles, innovative efficiency strategies, and other solutions that move people and goods more efficiently while generating less pollution, including in environmental justice communities,” the group of states said in an announcement.
Emissions from transportation account for the largest source of GHG emissions from the region.
The states include Connecticut, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Vermont and Virginia, plus Washington DC. The group announced the intention of completing negotiations within one year, after which the states (and Washington DC) could decide whether or not to join.
A similar cap-and-trade program already exists in the electricity sector, called the Regional Greenhouse Gas Initiative (RGGI). Coincidentally, New Jersey just issued a rule this week that would pave the way for its reentry into RGGI. Under the leadership of former Governor Chris Christie, New Jersey had withdrawn from the pact. Related: North Korean Oil Smugglers Elude U.S. Military
RGGI has been operational for years without hiccups, and offers a useful analog to the recent announcement targeting transportation. RGGI requires power plants larger than 25 megawatts to purchases carbon allowances, permitting them a certain amount of pollution. There is an overall cap that steadily tightens over time.
Critics might say that the cap-and-trade program for transit would drive up energy prices and/or act as a drag on the regional economy. However, in the case of RGGI, several studies have shown this not to be true. A report from earlier this year from the Analysis Group found that RGGI created $1.4 billion in net positive economic activity across the nine-state region between 2015 and 2017, or $34 per capita in net positive value.
The positive benefits are the result of auctioning off permits to polluters, then using the proceeds to reinvest back into energy efficiency, renewable energy, customer bill assistance, job training and more. The program is also a boon because the proceeds, paid for by power plant owners, flow into workers conducting energy audits, the sales of energy efficient equipment, money spent on training, and the sales tax collected on all of those activities.
Even looking narrowly at electricity prices, studies find that RGGI has not led to higher electricity prices because the region has become more efficient. Lower overall consumption has kept prices in check. “Consumers gain because their overall electricity bills go down,” the Analysis Group concluded in its report. “Since RGGI’s commencement in 2009, energy and dollar savings resulting from all states’ investments in [energy efficiency] and [renewable energy] has more than offset the wholesale market price increases associated with inclusion of allowance costs in market bids.”
The one problem with RGGI is that the cap is not strict enough to significantly curtail carbon emissions. The region has seen emissions decline sharply over the past decade, but much of that has to do with the shuttering of coal-fired power plants, an industry trend that had more to do with the shale gas revolution, some federal environmental regulations and the rise of renewable energy. In other words, RGGI was along for the ride, but was not necessarily the key driver in emissions reductions.
Part of the reason for that was a weak cap. But another part is because RGGI only covers larger power plants. Every other sector is not affected. Related: Libyan Oil In Jeopardy As Peace Talks Fail
That makes the new initiative announced this week by northeastern states, targeting transportation, a very significant development.
If RGGI is anything to go by, there is a great deal of potential in a cap-and-trade program for transportation, even if the devil is in the details. Some environmentalists point out that a market-based approach likely wouldn’t lower emissions by all that much.
Moreover, the challenge of cleaning up transportation is much more difficult than for electricity. Transit emissions are much larger in the region than for power generation, so the stakes are much higher. With power generation, there is a relatively small number of polluters. In transit, there are millions of individual polluters. The program would likely need to hit fuel suppliers, although details on how this would be structured has not been worked out yet.
Arguably, an even larger obstacle is political – the program could result in higher gasoline prices at the pump, which is always unpopular, even if the overall benefits of the entire program are a net positive since the proceeds will be reinvested back into public transit, electric vehicles, charging infrastructure and more.
But with the federal government trying to roll back the clock on fuel economy standards, individual states are going to have to go it alone if they want to clean up pollution from transportation.
By Nick Cunningham of Oilprice.com
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