Where East and West Coast Carbon Markets Meet

By Published On: December 15, 2006

While California took the unprecedented step of regulating six greenhouse gas emissions from the electricity market and other major industrial sources, the state program could well dovetail with the Northeastern states’ carbon dioxide cap-and-trade program. “Going it alone is not really an option,” said Franz Litz, New York’s climate change coordinator for the Northeastern states’ Regional Greenhouse Gas Initiative (RGGI). That group seeks to cut global warming gases over ten years. Litz compared and contrasted the RGGI program with California’s new greenhouse gas law, AB 32, at a December 11 California Air Resources Board informational hearing. Litz, who was the focus of the hearing, was peppered with questions from air board staff working to implement greenhouse gas reductions and others tracking AB 32’s development. The Northeastern regional initiative begins January 1, 2009, two years before California’s limits take effect. The governors of California and New York are discussing linking carbon markets, while the national leadership to date has rejected calls for developing a nationwide market. Under the Northeastern regional initiative, seven states set emissions caps for coal and other power plants. The ceiling will be lowered over time to reach CO2 reduction levels of 13 percent below 1990 levels by 2019. The region is the 11th-largest emitter of global warming gases in the world. The regionwide cap is 154,578,490 tons. The cap aims to keep emissions levels from rising in the Northeast for the first five years of the program. If California’s global warming program were linked with the RGGI, the combined market would represent the 6th-largest source of global warming gases in the world, and together represent the 3rd-largest economy. The RGGI cap-and-trade scheme is considered the crux of the program, unlike in California, where it’s unknown whether a trading market will be developed. AB 32 by Fran Pavley (D-Agoura Hills), the major energy legislation this year, calls for reducing greenhouse gas emissions by 25 percent by 2020. A cap-and-trade market is one of the options on the table to implement that law – but it is not mandated. Litz, however, sees a trading market as the way to slash carbon at the lowest costs. “If states are adequately controlling toxics [under pollution control programs], you overlay a cap-and-trade program,” he said. According to Litz, a carbon exchange will also price dirty, inefficient power plants out of the market. Thus, any resulting shutdowns of polluting plants, which are predominantly located in poor communities of color, will alleviate environmental justice concerns. The states currently participating in the RGGI are New York, Connecticut, Delaware, New Hampshire, New Jersey, Vermont, and Maine, with Maryland and Pennsylvania expected to follow. Each of the Northeastern states that have signed on to RGGI sets its own CO2 ceilings. They are set to establish allowances in tons of carbon for power plant owners. Unlike California’s, the multistate program’s emissions cap is based on levels of CO2 spewed out from the source of the gases, i.e., the plant stacks. The California Public Utilities Commission, on the other hand, has proposed a load-based cap for each utility and electricity service provider – based on the number of megawatts and underlying power source. RGGI’s Litz disagrees with the commission’s approach. “You can’t get an efficient trading policy with a load-based cap,” he said. Greenhouse gas allowances under the RGGI program will be auctioned off. New York will auction all of its allowances and plans to use the income for energy efficiency or clean-energy technologies. Any business, including new companies, can purchase allowances. Noncomplying generators would face penalties of up to three times the cost of a one-ton allowance. They may also be subject to civil and criminal charges under state law. – Elizabeth McCarthy

Share this story

Not a member yet?

Subscribe Now