Seven NE States Agree to Global Warming Pollution Caps

  • Jan 13, 2006
  • John Farrell
    •

    Seven northeastern states have signed a Memorandum of Understanding (MOU) to implement a Regional Greenhouse Gas Initiative (RGGI). The MOU outlines the program to cap greenhouse gas emissions through 2014 and reduce emissions by 10 percent by 2019, including the framework for a Model Rule to be released in draft form in 90 days.

    RGGI will stabilize greenhouse gas pollution from the power sector at approximately current levels from the start of the program in 2009 through the beginning of 2015. From 2015 through 2018 emissions will decline, achieving a 10% reduction from current levels by 2019. An emissions trading program will be established that will allow some of the emission reductions to be achieved outside the electricity sector through emissions offset projects.

    The design of RGGI, like any other cap-and-trade program, includes the following basic components:

  • First, the states determine the emissions sources to be covered by the cap.
  • Second, the states establish the total amount of emissions to be allowed from all of the sources, commonly referred to as the “emissions cap”.
  • Third, each state issues one allowance for each ton of emissions, up to the amount of the cap, and those allowances are distributed to the generators and the market.
  • Lastly, every covered source is required to have enough allowances to cover its emissions at the end of each compliance period.

    Sources that do not have enough allowances to cover their projected emissions can either reduce their emissions, buy allowances on the market, or generate credits through an emissions offset project. Sources that reduce their emissions and have excess allowances may either bank those allowances or sell them to other sources. Emissions trading guarantees that the most cost-effective reductions are implemented

    RGGI is designed to allow sources to use more offsets allowances if the cost of the carbon allowances exceeds prescribed thresholds. If the cost of allowances reaches $7 on a sustained basis, for example, sources will be permitted to cover up to 5.0% of their emissions with offsets allowances. If the cost per ton exceeds $10, then sources may cover up to 20% of their emissions with offsets allowances.

    Once a final model rule for RGGI is established it will become the basis for individual state rulemakings. In some states, such as New Hampshire, legislative approval is necessary before the rulemaking may begin. In other states, such as New Jersey and New York, the rulemaking will commence shortly after the model rule is finalized.

    Massachusetts and Rhode Island actively participated in the design of RGGI and the negotiation of the Memorandum of Understanding among the states, but they have not yet agreed to implement the program in their states.

    Projected direct electricity bill impacts due to RGGI average from $3 – $16 per household annually in 2015.

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