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EPA Rules Could Breathe New Life into Cap and Trade

Cap and trade may be dead on Capitol Hill, but states could use it to meet new EPA targets for reducing power plants’ carbon emissions.

Earlier this year, mayors from across the country renewed a pledge to reduce carbon dioxide emissions, building on the 10th anniversary of a national movement that brought new bike lanes, solar panels and entire fleets of hybrid government vehicles to cities. But the mayors made one significant change to their platform: They scrapped the idea of lobbying Congress for a national cap-and-trade program.

The mayors’ action confirmed what Washington observers have known for years. That is, the notion of a nationwide cap-and-trade system is dead in the water these days. Conservatives vilified the idea as a job killer in the 2010 midterms, and a national program -- which would create a regulated marketplace where companies that emit less carbon dioxide can sell permits to others that pollute more­ -- has no hope of passing in the current Congress. 

Cap and trade may be dead on Capitol Hill, but there could be a new impetus for such programs at the state or regional level. Thanks to newly proposed regulations from the Environmental Protection Agency (EPA), power plants in every state may be required to make dramatic cuts in carbon emissions by 2030. That could make state or regional cap-and-trade markets more attractive. 

States that already have a program in place should have an easier time meeting the EPA’s targets. In the Mid-Atlantic and the Northeast, the multistate Regional Greenhouse Gas Initiative (RGGI) has cut carbon emissions by at least 29 percent since 2009 while generating more than $1 billion in net economic benefits, according to a report by Environment Northeast, a nonprofit focused on addressing climate change. 

California also has its own cap-and-trade program. It has signed soft agreements with both Oregon and Washington to explore ways of cutting carbon emissions through market-based solutions, which might ultimately result in a Western version of RGGI. (Unlike RGGI, California’s system recently expanded to include carbon emissions from vehicles. Since the new EPA regs only recognize reductions in power plant emissions, that could make it harder for California to meet the agency’s ambitious targets.) 

New Jersey is another state where tighter EPA restrictions could result in a cap-and- trade approach. The state once was a member of RGGI but left in 2011. The legislature has twice passed resolutions to rejoin the regional group, but so far Gov. Chris Christie has blocked any further action with a veto.

Cap and trade isn’t the only way states could meet the EPA targets. They could expand their renewable energy portfolios, replace coal with natural gas or initiate carbon pricing. “You could see a range of options emerging,” says Peter Shattuck, who studied RGGI for Environment Northeast. But cap and trade has one advantage that other approaches do not: administrative simplicity. The RGGI model can be duplicated quickly and cheaply, Shattuck says, and that might be hard for states to resist.

J.B. Wogan is a Governing staff writer.
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