The US Makes Use of Cap-and-Trade and Cap-and-Invest Programs

Only thirteen states have adopted an emissions trading system in the United States. Eleven states in the northeast (Connecticut, Maine, Delaware, Massachusetts, Maryland, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont) are part of the Regional Greenhouse Gas Initiative (RGGI), which is a cap-and-trade program. California also has a cap-and-trade program, while Washington state has adopted a cap-and-invest program. Despite the United States being open to reducing greenhouse gas emissions, it is up to each state to adopt a climate-friendly trading system.

Cap-and-trade programs are started when a state or government entity decides to limit the amount of CO2 emissions by creating an emissions “cap.” This means that companies are limited to buying and trading permits to create collectively established emissions to maximize the carbon cap emissions level. For example, an oil company must buy a permit to create emissions in the state of interest, and if they decide to trade it with another company, they are allowed to do so.  Often, state governments sponsor auctions that allow companies to buy emissions permits.

This is different from the cap-and-invest program, which also does the same thing; however, the revenue from the auction is used to invest in climate solutions and sustainability for the communities using the cap-and-invest program. An example would be a fracking company buying a permit for emissions in a state that will use the money generated from the sale to invest in creating a sustainable transportation system in a metropolitan area.

For the RGGI, each state’s government monitors the cap-and-trade permits and emissions. The RGGI is the umbrella agency to which each participating state’s governmental regulatory body reports. In California, the cap-and-trade programs report to the California Air Resource Board. In Washington state, the program is managed by the Washington Department of Ecology, and companies must report to the Greenhouse Gas Reporting Program.

Since the RGGI started, the eleven states have had a 90% faster decrease in emissions compared to other states, which has resulted in reducing power plant pollution by 50% and raising over $3 billion to give back to states. Since the creation of the California cap-and-trade program, the state has seen yearly reductions in its emissions and generated over $9 billion through the California Climate investment programs focusing on equitable solutions, health outcomes, and climate investments.

When the RGGI initiative was first created, it set a higher emissions standard cap in 2009 compared to what emissions were released in its states. In 2012, this cap was adjusted to account for electrical plants that relied on coal and other fossil fuels, which decreased their prominence in electricity generation. With lessons learned from programs like these, RGGI, California, and Washington state can continue to set the standard for emissions trading systems in other states so that the US can shift toward a renewable energy future off of fossil fuel dependency.

This Post was submitted by Climate Scorecard US Country Manager Abigail Carlson.


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