States Mull Policy B Carbon Market as U.s. Climate Bill Falters
“Plan A is we get a federal cap-and-trade program,” Judi Greenwald, a vice president at the Arlington, Virginia-based Pew Center on Global Climate Change, said by phone. State-enforced greenhouse gas limits “can be a credible Plan B.”
Ten Northeastern states already have a cap-and-trade program for power plants and raised $432.8 million from carbon dioxide permit sales since September 2008. Two other multistate coalitions plan to start cap-and-trade programs in 2012 that would cover power plants and other pollution sources such as factories, cars and trucks.
With backers of cap-and-trade legislation that passed the U.S. House of Representatives in June struggling to round up support in the Senate, the states are discussing the “nuts and bolts” of linking regional programs to form a single carbon market, Illinois Environmental Protection Agency Director Doug Scott said in an interview.
“Most people recognize that the larger the program, the better in terms of cap-and-trade,” Scott said.
Twenty-three states are active members of the Northeasts Regional Greenhouse Gas Initiative, the Midwestern Greenhouse Gas Reduction Accord and the Western Climate Initiative. Together these regional cap-and-trade programs would cover 53 percent of the U.S. economy and 49 percent of the population, according to Commerce Department data.
$250 Billion in Deficits
The regional cap-and-trade programs offer the states a new revenue source as the U.S. economy emerges from the worst recession since the Great Depression. States are working to close $250 billion of deficits and “wont fully recover from this recession until late in the next decade,” the National Governors Association said Nov. 12.
Under cap-and-trade, the government would create a limited number of carbon dioxide permits, or allowances, which could be bought and sold on a market. To enforce emission-reduction targets, fewer allowances would be made available over time.
Slightly more than a third of U.S. greenhouse gases would be regulated by the regional programs, compared with the 85 percent of national emissions covered by the House and Senate cap-and-trade proposals, said Greenwald, who advises state officials on climate-change plans.
“Its not what we need, but its certainly a lot better than nothing,” she said.
New York Diversion
Other states working to close their budget deficits could turn to cap-and-trade revenue as “one small piece of the solution,” Nicholas Johnson, the state fiscal project director at the Washington-based Center on Budget and Policy Priorities, said by phone.
Instead of coupling “one big revenue piece” with the spending cuts needed to balance their budgets, states are raising taxes and fees “a bit here and a bit there,” Johnson said. “Thats where something like revenue from a cap-and-trade system comes in.”
While each state in the Northeast cap-and-trade program decides how many permits to sell and how many to issue for free, as a group they are auctioning 87 percent of their carbon dioxide allowances. In the Western Climate Initiative, state officials drawing up the rules of the cap-and-trade program want at least 10 percent of the carbon permits to be auctioned.
California Auction
California, the largest member of the Western Climate Initiative, will definitely auction some of its carbon dioxide permits, Michael Gibbs, an assistant secretary at the states Environmental Protection Agency, said in an interview. Californias first auction is planned for late 2011, Gibbs said.
In the Midwest program, “we dont freely allocate any allowances at all,” Scott of the Illinois EPA said. Some will be sold through auctions to the highest bidders and others given directly to industry at a “nominal price.”
While officials who designed the regional cap-and-trade program say the revenue raised should fund pollution-cutting programs, governors and state legislatures will have “pretty wide latitude” on how to spend the money, Scott said.