Academic journal article Duke Environmental Law & Policy Forum

Integrating State, Regional, and Federal Greenhouse Gas Markets: Options and Tradeoffs

Academic journal article Duke Environmental Law & Policy Forum

Integrating State, Regional, and Federal Greenhouse Gas Markets: Options and Tradeoffs

Article excerpt

I. INTRODUCTION

Experiments with limiting greenhouse gas (GHG) emissions through cap-and-trade programs are underway in approximately half of U.S. states. There are currently three regional carbon markets under development in the Northeast, the West and the Midwest, and ten states recently joined eleven other countries and the European Commission to form an international forum to share information and experiences with the design and implementation of carbon markets. At the same time, the U.S. Congress is considering multiple proposals to create a federal cap-and-trade market.

Companies are beginning to take action to reduce their GHG emissions, some voluntarily and some in preparation for regional/state markets. The question arises whether and how a federal carbon market should address the state and regional carbon markets that are in operation before the federal market is implemented. This topic is distinct from the broader issues of defining the appropriate role for the states in a national GHG emission reduction strategy or whether a federal law should preempt states' authority to limit GHG emissions within their borders. The discussion in this article regarding preemption is limited to the treatment of regional/state markets and does not address preemption generally.

This article describes regional/state carbon market initiatives currently under development, identifies alternatives for addressing these initiatives within a federal GHG emissions cap-and-trade system, and highlights political and administrative challenges presented by each approach. To date, only one of the regional cap and-trade markets--the Regional Greenhouse Gas Initiative (RGGI)--is far enough along in its development to provide details with which to compare to federal legislative proposals. As a result, RGGI is cited where appropriate, but much of the discussion is framed in general terms. The article also highlights related issues such as integrating credits generated through offset projects (i.e. emissions reductions or sequestration by uncapped entities such as small emitters or the agricultural and forestry sectors) and providing credit to companies that have taken early action to reduce GHG emissions.

II. REGIONAL/STATE CARBON MARKETS CURRENTLY UNDER DEVELOPMENT

A growing number of regional/state carbon markets are currently under development, each covering different segments of the economy and imposing different emissions caps. Ten states in the Northeast and Mid-Atlantic are cooperating in the development of the Regional Greenhouse Gas Initiative (RGGI) carbon market to cap emissions from electric utilities, with emissions trading scheduled to begin in 2009. (1) California has committed to a mandatory cap on emissions from sources throughout the state's economy through 2050, (2) and regulators are determining which mechanisms the state will use to meet the targets. (3) In 2007, Hawaii and New Jersey became the second and third states to pass legislation mandating greenhouse gas limits, committing to reductions through 2020 and 2050, respectively. (4) Like California, these states have not yet announced the mechanisms they will use to achieve the reductions.

California is also working with six other states and two Canadian provinces to develop the Western Climate Initiative (WCI), a regional market similar to RGGI but with the goal of capping emissions from a broader range of sources. (5) On November 14, 2007, governors from six Midwestern states and the premier of Manitoba signed the Midwest Greenhouse Gas Accord to begin development of their own regional carbon market. (6) Three additional Midwestern states signed onto the Accord as observers. (7)

In addition to these formal market efforts, ten states participating in the WCI or RGGI recently joined eleven other countries and the European Commission in launching the International Carbon Action Partnership, "an international forum of governments and public authorities that are engaged in the process of designing or implementing carbon markets. …

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