Success of Regional Greenhouse Gas Initiative Lays Groundwork for States on Clean Power Plan Compliance

NEW YORK—As the Regional Greenhouse Gas Initiative (RGGI) undergoes its periodic comprehensive review, a new report finds that America’s first carbon market can provide a roadmap for states seeking to comply with the Environmental Protection Agency’s (EPA) Clean Power Plan (CPP), particularly states interested in trading with other states.

The report, RGGI and CO2 Emissions Trading Under the Clean Power Plan, by the Analysis Group, focuses on how to harmonize RGGI’s trading program with CPP compliance requirements and suggests technical adjustments to RGGI to expand trading opportunities inside and outside the Northeast. The report was released Tuesday at a workshop for RGGI stakeholders in New York City.

“RGGI has seven years of success in reducing emissions and saving money and therefore has a lot of experience to share with other states that are putting together their own plans to comply with new EPA regulations,” said Susan Tierney, Ph.D. who co-authored the report.

According to the report, a broader market with more participants lowers the overall cost of compliance with CPP requirements. With manageable program design changes, RGGI can establish an “open architecture” that enables mutually beneficial trading with other states. Doing so will generate long-term benefits to RGGI states, and ultimately achieve the lowest cost of CPP compliance. A more open structure would also provide a pathway to emissions trading for “non-RGGI” states, as an effective market-based mechanism for CPP compliance, assuming that the EPA’s regulations go into effect following review by the federal courts.

RGGI can play this leadership role, but in order to do so, the report encourages the RGGI states to consider some minor technical adjustments and key program design issues sooner rather than later, because many states are still considering their options in anticipation that the CPP will be going forward. The review encourages the RGGI states to consider:

• RGGI states will want to address some technical revisions to the current RGGI program design so that it can comply with CPP requirements.
• RGGI states may need to balance the implications of achieving the long-term benefits of a broader trading market with potential changes in allowance prices and state auction revenues, and the effects of these factors on states’ leadership in clean energy development.
• RGGI should continue to allow each RGGI state (and others that may wish to allow their power plants to trade with generating units in the RGGI states) to decide how to initially distribute CO2 allowances, whether by auction or direct distribution (free) to the regulated power sources.
• Expanded allowance trading would greatly benefit from the monitoring of the allowance market as is currently done as part of the RGGI program.

The Report also notes that a number of other issues that are important to the RGGI states – such as the size of the RGGI state allowance budget (known as the “cap”) – need not deter the development of an open architecture for trading with other states.

“The 2016 program review is an opportunity for RGGI to make some small changes that could have a big impact—not just for the nine states that have been trading with each other for years—but for new states that want to develop a market-based emissions reduction program,” said Paul Hibbard, co-author of the report.

The RGGI program has reduced CO2 emissions by 40 percent from 2005 levels across Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont, while the region’s economy has grown by 8 percent.