Emissions Trading Worldwide

The Regional Greenhouse Gas Initiative
A Model for Implementing the Clean Power Plan
Will Space, Massachusetts Department of Environmental Protection
Lois New, Office of Climate Change, New York State Department of Environmental Conservation
Justin Johnson, Office of the Governor, State of Vermont
The Clean Power Plan mandates state-wide reductions
Power plants are the largest source of carbon emissions in the
United States, accounting for about one-third of domestic greenhouse
gas emissions. On 3 August 2015, the U.S. Environmental
Protection Agency (EPA) issued the Clean Power Plan (CPP), incorporating
extensive public comments on the draft released in 2014,
thereby establishing a national program to reduce carbon pollution
from power plants by 32% below 2005 levels by 2030. The
CPP sets a CO 2 reduction goal for each state, while giving the states
considerable flexibility in how they achieve their respective goals. 1
The success of the Regional Greenhouse Gas Initiative (RGGI)
states in reducing CO 2 has made the RGGI program a model for
many elements of the CPP, and the structure of the final CPP could
potentially foster the expansion of power-sector carbon markets
across the U.S. Whether and how this will occur will not be known
for several years, but regional trading could play an important role.
The CPP is a key component of President Obama’s Climate
Action Plan. The structure of the CCP is consistent with the U.S.
Clean Air Act which requires the EPA to regulate carbon emissions
from existing power plants. The CPP sets state-wide emissions
reductions targets, and then allows states to decide which policies
should be implemented to achieve them. For example, a state may
choose to cap the total amount of emissions from in-state power
plants, or instead adopt a ‘rate-based’ limit. No matter what policies
are selected, states must demonstrate that the required emission
reductions have been achieved from the power sector.
“The CPP sets state-wide emissions
re ductions targets, and then allows
states to decide which policies should
be implemented to achieve them.”
1 For details of the Clean Power Plan see: http://www.epa.gov/cleanpowerplan/clean-powerplan-existing-power-plants
2 Analysis Group (2015) ‘The Economic Impacts of the Regional Greenhouse Gas Initiative on
Nine Northeast and Mid-Atlantic States’. Available at: http://www.analy-sisgroup.com/newsand-events/press-releases/new-data-show-states-that-limit-carbon-emissions-throughmarkets-are-seeing-economic-benefits/
3 Murray, B. C. and Maniloff P. T. (2015) ‘Why Have Greenhouse Emissions in RGGI States
Declined? An Econometric Attribution to Economic, Energy Market, and Policy Factors’ Energy
Economics 51:581–589. Available at: https://nicholasinstitute.duke.edu/environment/publications/why-have-greenhouse-emissions-rggi-states-declined-econometric-attributioneconomic
4 The most recent RGGI allowance auction cleared at 7.50 USD per short ton of car-bon dioxide,
which corresponds to 8.27 USD per metric ton. RGGI auction results are available at
http://www.rggi.org/market/co2_auctions/results
“If enough states express interest,
it is possible that these submissions will
ultimately lead to the formation of
a national carbon market.”
The RGGI model as a means of compliance
Adopting an ETS is an obvious solution for many states, and the EPA
is providing strong support for ETS development, such as model
regulations, technical assistance with allowance tracking, and
even the potential option for states to join an EPA-administered
ETS. Many stakeholders, including environmental NGOs, electricity
grid operators, and power companies support emissions trading
as the preferred approach to comply with the CPP, drawing on
a comprehensive library of academic literature and decades of
experience with ETS. On the other hand, states may consider other
approaches, such as implementing rate-based standards, or integrated
resource planning in regions with regulated wholesale electricity
markets. How this will play out will become clearer as states
submit their compliance plans over the next few years, with initial
submissions due in September 2016 and final plans due two years
later. As the CPP requires the gradual reduction of CO 2 emissions
over the 2022–2030 timeframe, electricity producers have time to
plan business strategies to lower their emissions consistent with
the CPP implementation approach taken by each state.
Because of its focus on the electricity sector, RGGI is well suited
for CPP compliance. The timing of the CPP is also advantageous, as
the RGGI states have recently started a previously-planned program
review that will, among other aims, address any reform needed
to comply with the CPP. Recent research conducted on the RGGI
program will inform this review. In fact, several recent studies highlight
the positive effects of the program. For example, the Analysis
Group, a U.S.-based independent consultancy, documented net
economic benefits from the program of more than USD 1.3 billion
from 2012–2014, 2 and an assessment by researchers at Duke
University affirmed RGGI’s contribution to emission reductions
in comparison to other factors such as weather and fuel prices. 3
These positive assessments, the planned program review, and the
2016 deadline for initial CPP submissions will ensure that over the
next year RGGI continues to generate strong interest among policymakers
as a model for CPP compliance across the U.S..
The RGGI carbon market remains robust with good prospects.
Allowance prices have recently risen above USD 8.00 per metric
ton of CO 2 , 4 and a RGGI stakeholder meeting in November 2015
indicated that there is strong interest in using RGGI to comply with
the CPP. Serious conversations are now underway in other states
about implementing market-based approaches for CPP compliance.
The situation will become clearer over the next six months
as states prepare for the September deadline to submit initial
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