Today a group of Northeast and Mid-Atlantic states announced the start of a stakeholder process to create a regional cap-and-trade program to reduce greenhouse gas emissions from the transport sector.
The draft memorandum of understanding (MOU) and draft principles for a model rule released today by the Transportation and Climate Initiative (TCI) will inform final program design. Comments from the public are due Feb 28, 2020. TCI states include: CT, DE, ME, MD, MA, NH, NJ, NY, PA, RI, VT, and VA.
The broad outlines of the TCI carbon trading program follow closely the Regional Greenhouse Gas Initiative (RGGI) program covering greenhouse gas emissions from the power sector. The key elements in the TCI MOU are as follows:
Regulated Fuel & Entities
TCI will measure and cap carbon emissions from the use of gasoline and on-road diesel. The affected fuel will be regulated upon removal from a storage facility (e.g. the terminal rack) and destined for use in a participating state.
Prime suppliers of regulated fuels will be required to hold allowances to cover CO2 emissions from affected fuels. There are about 100 regulated entities in states anticipated to join TCI.
Emissions Cap
The emissions cap will be determined in the final rule and will decline each year of the program’s operation.
Compliance periods will run three years, and may include interim compliance obligations.
Allowances can be banked year-to-year.
Allowance Auctions
Allowances will be distributed through regular auctions administered by the regional organization (see below). Auctions will have a minimum reserve price.
Stability Mechanisms
Like RGGI, TCI is considering mechanisms to contain the price of allowances, including: a.) a cost containment reserve (CCR) to inject allowances if costs get too high; b.) an emissions containment reserve (ECR) to remove allowances if prices get too low; c.) limited use of offsets as a compliance alternative to allowances; and d.) linking to other cap-and-trade programs (e.g. RGGI).
Timing
TCI endeavors to finalize a model rule for participating states by December 31, 2020. Program implementation is targeted for January 01, 2021.
Administration
A regional organization similar to RGGI would be created to implement the program. Participating states would effectively outsource administrative duties to the organization, while conducting enforcement within their jurisdictions.
Evolution Markets’ carbon markets team will continue to monitor TCI developments. Please contact our brokers at: +1 914.323.0265 or uscarbon@evomarkerts.com for more information on the TCI process and proposed cap-and-trade program.