States launch carbon market

US regional emissions trading scheme goes live in eastern US

In a big breakthrough on carbon trading, the US now has its first mandatory cap and trade programme – even if it’s not yet nationwide.

The Regional Greenhouse Gas Initiative (RGGI), launched in September, owes no thanks to the lame duck Bush administration, which effectively turned its back on climate action. Instead, ten state governors and state legislatures stepped into the void, creating a carbon market covering Maine, New Hampshire, Vermont, New York, Massachusetts, Rhode Island, Connecticut, New Jersey, Delaware and Maryland.

The initiative caps carbon dioxide emissions from power plants across the ten states at 188 million tons CO2 (171 million metric tons). Pollution permits allowed under the cap will be auctioned on a quarterly basis. The first auction, on September 25, saw all 12,565,387 allowances on offer sold at US$3.07 each to 59 participants from the energy, financial and environmental sectors.

The auction raised $38,575,783 to be shared among participating states, which hope their pioneering move will spur energy innovation and create green jobs in their states.

“These northeast and Mid-Atlantic states have been pioneers at a time when federal action has been egregiously lacking,” said Jonathan Lash, president of the World Resources Institute in Washington D.C., which helped states design the RGGI agreement. “Their accomplishments have proven that emissions markets are effective and politically possible.”

RGGI will soon be joined by two other regional mandatory GHG emissions markets – the Western Climate Initiative and the Midwestern Greenhouse Gas Reduction Accord – involving a total of nealy 20 more US states and several Canadian provinces. Environmental groups hope their example will form the basis of an emissions market involving the whole US at federal level under Barack Obama’s incoming administration.

Future markets, however, will need to avoid one key problem encountered by RGGI. The formula used for setting the cap proved inaccurate in its estimate of emissions growth in the electricity sector, with the result that the initial cap has been set more than 5% above the industry’s actual emissions volume. Adjustments are being considered, but are not likely to happen soon as they would require full regulatory approval. – Polly Ghazi