The U.S.’s First Cap-and-Trade Program Addresses Global Warming

Seven Northeast states participating in the Regional Greenhouse Gas Initiative (RGGI), a multi-state program to reduce harmful climate-changing emissions from power plants, released a model set of regulations to be proposed in each state to implement the first mandatory cap-and-trade program in U.S. history.

Designed specifically to reduce environmentally harmful carbon dioxide (CO2) emissions, the states that reached agreement to the cap-and-trade program are Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont. The State of Maryland recently adopted legislation requiring Maryland to join RGGI by June 2007. Under the RGGI, a regional cap-and-trade system uses emissions credits or allowances to limit the total amount of CO2 emissions. Beginning in 2009, emissions of CO2 from power plants in the region would be capped at approximately current levels-121 million tons annually-with this cap remaining in place until 2015. The states would then begin reducing emissions incrementally over a four-year period to achieve a 10 percent reduction by 2019. Compared to the emissions increases the region would see from the sector without the program, RGGI will result in an approximately 35 percent reduction by 2020. In response to comments received, the states also agreed to make certain minor modifications to their December 2005 memorandum of understanding. The states agreed to simplify the way the program will incorporate so-called “offset credits” — reductions of greenhouse gas emissions that are achieved outside the electricity sector such as at landfills, farming operations or certain other project sites. In 2003, Governor Pataki initiated the RGGI process by sending a letter to the governors of the Northeast and mid-Atlantic states inviting them to pursue “a course of cooperation” and work together “to develop a strategy that will help the region lead the nation in the effort to fight global climate change.” The RGGI program allows power plants to utilize “offsets” — greenhouse gas emission reduction projects from outside the electricity sector-to account for up to 3.3 percent of their overall emissions. Examples of offset projects include: natural gas end-use efficiency, landfill gas recovery, reforestation, and methane capture from farming facilities. The participating states will next proceed with seeking the required legislative or regulatory approvals to adopt the program. Pending the completion of this process, the RGGI program will take effect on January 1, 2009.
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