RGGI

From the NYT (Seven States ...):

New York, New Jersey and five other Northeastern states have formally agreed to join in the first mandatory regional program in United States history to cut greenhouse gas emissions from power plants.

RGGI is the Regional Greenhouse Gas Initiative, the region is the NE: Connecticut, Delaware, Maine, New Hampshire and Vermont, sans MASS and RI. Is it just me, or, is the adoption of what-used-to-be-radical -- tradeable emissions permits-based environmental policy -- becoming mundane?

Below the fold is a description of how the market will work from the NYT article. If you need more detail, check out the RFF sponsored webcast of a side event at the Montreal climate change conference. Even if you are not interested, the webcast is pretty cool in and of itself. It is 1.5 hours with 3 panelists, including RFF's Dallas Burtraw (one funny note: he called the MAC graph a "cartoon," I guess that is one way to avoid being a dismal scientist), and the slide show running next to the video, almost like you were there. I had it on in the background yesterday and learned a lot about RGGI. Here it is: The RGGI Model: Allocations, Offset, and Linkages.

The market:

Under the Regional Greenhouse Gas Initiative, as the Northeast plan is known, the seven states will create a flexible system of pollution permits, called allowances. Each state will issue one allowance for every one of the 121 million tons of carbon dioxide that power plants in the region now produce.

At least 25 percent of those allowances will be auctioned off, with the proceeds going to consumer subsidies or conservation projects. The rest will be given to power plant operators free of charge.

Each power plant will need enough allowances to cover all its emissions. Plants that run on cleaner fuels like natural gas may not use all theirs and can sell surplus ones to generators that need them.

Plants that burn coal, which emits far more carbon dioxide, may have to buy additional allowances.

Operators also have the option of covering some emissions by financing "offsets," environmentally sound projects that reduce carbon dioxide from sources other than power plants. For example, they can pay to plant trees or finance projects to recover methane gas from landfills.

This system of allowances and offsets is intended to encourage technological innovation. A similar program was established in the early 1990's to handle the problem of acid rain.

In an attempt to keep Massachusetts in the agreement, the other states amended their original proposal last week. If allowances exceeded $7 a ton, the amount of pollution offsets available would increase. If allowances exceeded $10 a ton, offsets would increase even more, and would be allowed to be financed anywhere in the world.

But Mr. Romney did not accept the compromise, and Massachusetts will enact its own program next year. The changes, however, have remained in the plan.

Based on cost estimates done by the states, average household bills could go up by about $20 a year, although some plant operators claim the increases will be much higher.

Comments

[dave rosenheim]

Thanks for this clear explanation. I attended a U Mass/MIT clean energy conference in Novemer, for which Romney gave the keynote. He was really waving his green flag and giving all kinds of lip service to his support for green issues. Like many others who were counting on his support RGGI, I'm appalled at his withdrawal. If he does run for president, we cannot forget this betrayal.

I do have a question pertaining to the RGGI. What will the trading mechanism be? Will the credits be traded on an open exchange, i.e. the CCX?