Nine Northeastern states already take part in a regional trading network. In states, cap and trade lives on

Many people in Washington think of cap and trade as a carbon-cutting strategy that died in the Senate four years ago.

But in fact, it’s alive and well in much of the country. Advocates say it’s working. And it’s poised to gain new life from the proposed greenhouse gas rule that the Environmental Protection Agency is rolling out next week.


Nine Northeastern states already take part in a regional trading network that puts an economic price on their power plants’ carbon output, while California has a carbon trading system that is linked with Quebec. The Northeastern states saw their power plants’ carbon emissions drop more than 40 percent from 2005 to 2012, the trading network told EPA in December — without any of cap-and-trade critics’ apocalyptic expectations for such a system.

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Those ranks could grow because of EPA’s upcoming climate regulation, which is expected to give states wide latitude in how they reduce the greenhouse gas pollution from existing power plants.

Pennsylvania’s Democratic nominee for governor, Tom Wolf, is promising to have his state join the Northeastern carbon trading network — the Regional Greenhouse Gas Initiative — as part of his climate platform. New Jersey Gov. Chris Christie pulled his state out of RGGI in 2011, but some energy analysts hypothesize that it might rejoin after the EPA rule becomes final next year, if the agency, as expected, gives the program its blessing in the rule.

Inquiries about how the trading system works have come in steadily from other states as EPA crafts its proposed rule, said RGGI’s Maryland commissioner, Kelly Speakes-Backman, and others involved in the system. Without naming names, they said the states are not always the ones people would expect.

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“A lot of states are keeping their options open at this point,” said Franz Litz, an energy consultant working with state regulators from the Midwest to consider options for cutting carbon under the upcoming regulation. He declined to identify the states that have not publicly acknowledged their efforts but said the group includes “some very red states and some blue states.”

Litz also works on the RGGI EPA Rules Collaborative, a group that includes power companies and environmental groups pushing for EPA to accept the Northeastern system as a means of complying with the rule.

Even states whose political leaders squawk about EPA may end up complying in the end, said Vicki Arroyo, executive director of the Georgetown Climate Center, adding that coal-loving Kentucky has been actively engaged in discussing options.

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“Everyone sort of assumes that there will be some lawsuits, but there’s also, I think, a real discussion underway … that’s constructive,” Litz said.

The Clean Air Act allows EPA to set up and enforce the climate rule in states that don’t provide their own compliance plan. Most states would prefer to be in charge of their own programs, Arroyo said.

Cap and trade is far from the only option for states to meet the new carbon standards, but supporters say it offers a market-based way to encourage clean energy and reduce pollution without having government bureaucrats impose a one-size-fits-all solution. While the details of such plans differ, they commonly place a limit on certain types of pollution (the “cap” part) and require those who exceed the threshold to buy credits on a market (the “trade” portion).

Cap and trade was a key part of the George H.W. Bush administration’s strategy for reducing acid rain in 1990, and it would have been the centerpiece of the climate bill that stalled and died in the Senate in 2010.

Despite the concept’s bipartisan heritage, cap and trade has become politically toxic in some circles — especially among supporters of coal, the carbon-intensive fuel that would face the heaviest costs under any trading system. Republicans derided the climate bill as “cap and tax,” while West Virginia Democrat Joe Manchin famously unloaded a rifle into a copy of the legislation during a Senate campaign commercial.

Still, cap and trade never went away.

With RGGI and California combined, about a quarter of the U.S. population lives in areas covered by trading programs designed to drive down carbon emissions, said Janet Peace, vice president of the Center for Climate and Energy Solutions, at a Senate briefing Thursday.

Other programs exist in Alberta, Canada; Australia; New Zealand; Norway; and South Korea. Next year, cap-and-trade programs are expected to launch in Switzerland, Tokyo, the United Kingdom and South Africa. Others are in development or undergoing pilot tests in Brazil, China, India, Japan, Mexico and even Kazakhstan.

“Eventually, 250 million people will be covered by a carbon price in China,” Peace said.

Under RGGI’s nine-state program, power plants that have the capacity to produce 25 megawatts or more power are required to purchase one allowance for every ton of CO 2 they emit, with the price based on quarterly auctions. The utilities purchase the allowances directly from the states, and the states spend the money on programs like investments in energy efficiency and efforts to reduce demand for fossil fuels.

In Maryland, thousands of low-income apartments have been given efficiency upgrades, and the money helped 3,100 families and 106 businesses install solar, wind and geothermal systems to offset the need for carbon-polluting electricity. In Delaware, the funds have subsidized energy-efficient appliances and LED light bulb installation at poultry farms that should cut back on 890 megawatt-hours of electricity every year. The programs have given grants toward the costs of installing solar panels at a community college in New York and efficient refrigeration systems at a blueberry company in Maine.

RGGI and independent studies have found that the program injected more than $1.6 billion into the regional economy and saved consumers about $1.1 billion on electric bills in its first three years, while creating new jobs and cutting CO 2 . Arroyo said some states have also gained from reinvesting the auction money.

Besides their 40 percent reductions in CO 2 emissions from 2005 to 2012, the nine RGGI states are requiring 2.5 percent cuts each year from now until 2020. That means the region will have cut carbon emissions 50 percent below 2005 levels at that point.

Many of RGGI’s early carbon cuts came from causes unrelated to the program, Litz said, noting that the states faced an economic turndown, closed coal plants and had increased their reliance on natural gas. But the program was flexible, and the states lowered the carbon cap in response, he said.

Of course, not all states will follow the RGGI model for cutting carbon.

Thirty states have adopted a “renewable portfolio standard” that requires a certain amount of power to come from wind, solar and geothermal sources. Colorado is on track to cut 29 percent of its carbon emissions by 2018 by lowering demand and increasing energy efficiency and use of wind power, according to a report from the Georgetown Climate Center that details CO 2 -reduction programs in 46 states. Minnesota cut 17 percent of its emissions from 2005 to 2011 and has banned new coal-fired power plants if they produce a net increase in carbon pollution, the report said.

California has an economywide cap-and-trade program that includes a broad variety of pollution sources, not just power plants. Litz said he’d be “surprised if any other states approached it more broadly” like that. But over time, if EPA moves to regulate greenhouse gas emissions from industries like refining and manufacturing, some states could add those industries to whatever mechanism they choose, he said.

It’s too soon to tell if more states will launch RGGI-type programs, said Tim Profeta, director of the Nicholas Institute for Environmental Policy Solutions at Duke University. And some experts, like Navigant managing director Cliff Hamal, say EPA’s state-by-state approach will never be as efficient as a nationwide approach to putting a price on greenhouse gas pollutions, such as a carbon tax.

Hamal, who released a report on the difficulties of creating cap-and-trade programs across widely varied market systems and regional power regulators, argues that RGGI hasn’t really been tested and hasn’t had to achieve the kinds of carbon cuts EPA could require in coming years. But once EPA sets a plan in motion, the country could be locked in for decades, he said.

In some states where the power markets are governed by regional regulators, “the state doesn’t have a way of telling investors of that system what to put their money into,” he said. “How is giving states authority to reduce CO 2 going to work?”

Many people involved in wind and solar power — which produces no greenhouse gases — are also looking anxiously toward EPA’s efforts. The Solar Energy Industries Association has warned that “poorly designed” trading systems could harm some states’ voluntary carbon credit systems or could keep nonutility solar owners from getting credit for their CO 2 reductions.

Others say the huge gaps between existing programs are a bridge that will be hard to cross. For example, big disparities exist between the carbon price in California and the RGGI states, said analyst Tim Cheung of ClearView Energy Partners.

But Speakes-Backman thinks the results in the Northeast speak for themselves.

“RGGI is a market-based program that reduces emissions — specifically carbon dioxide emissions — at the lowest possible cost,” she said.