In the Eastern United States, nine states, from Delaware to Maine, emit as much global warming pollution as all of Germany and make up the world's third-largest economy. Europe, however, has mandatory limits on carbon dioxide pollution, as well as an emissions trading system to mitigate the costs of compliance. Here in the United States, no such thing exists, and on a national level plans have yet to materialize. And yet the stakes have gotten so high that a group of pioneering Eastern states are not waiting for the federal government to act. They are establishing a system similar to Europe's, commonly referred to as cap-and-trade.
The Regional Greenhouse Gas Initiative is the first of its kind in the United States and involves an unprecedented level of cooperation among state governments, industry, and environmental groups coordinated by NRDC. The cap-and-trade system applies only to power plants, which will have to work collaboratively to find the cheapest way to keep greenhouse gas emissions below a regional limit.
"Companies in the Northeast will reduce their carbon risk now," says Dale Bryk, a senior attorney at NRDC and adviser to the group of nine governors who established the system. "They'll learn how to comply with new regulations at the lowest possible cost. And this will give them a competitive advantage in what will inevitably be a carbon-regulated world."
For the cap-and-trade system to succeed, each state has to adopt internal rules consistent with those of every other state. In essence, what the nine governors have said to one another is this: If we all make comparable commitments to reduce emissions, then we can trade. Each power plant will be required to have a permit, or an "allowance", for every ton of carbon dioxide it emits, but it can buy allowances if that's cheaper than reducing emissions by improving efficiency, for example. NRDC is pushing for a requirement that would force plants to pay for each allowance (rather than getting them for free), in effect making regulating carbon emissions simply another cost of doing business. That decision will be made next year.
The plan will go into effect by 2009 and is expected to cap emissions initially at current levels, about 145 million tons a year. Each year, the total number of allowances will decrease, and the companies that devise the most economical ways to reduce their emissions will benefit most financially -- a built-in incentive to invest in newer, cleaner technologies.
In the end, a system like this will succeed only if electricity demand is met and costs stay down, and several states have conducted studies showing that they can do this. Investment in efficiency reduces the amount of energy each consumer needs to operate home appliances, for example, so while the number of consumers may grow, the overall amount of energy used will not increase. "Plants won't have to run more, so it will be cheaper for them to meet future caps," Bryk says.
As mandatory limits to greenhouse gas emissions loom nearer, states outside of the Northeast are looking to get in on the trading game. The trading system is designed to allow non-contiguous states to join: New Mexico and Arizona are already planning emissions reduction strategies. And on the western seaboard, the governors of California, Washington, and Oregon are negotiating a program comparable to that of the Eastern states.