Pennsylvania Joining ETS Could Lead to Significant Emissions Reductions: Part 1

Multiple countries either have an emissions trading system (ETS) or are in the process of developing an ETS. Policymakers laud ETSs as an effective method to incentivize clean energy practices and bring down carbon emissions—for instance, the EU ETS reduced emissions from included industries by approximately 35% between 2005 and 2019. The US doesn’t have an ETS at the federal level or a larger cohesive climate change plan. Instead, several states have taken up the mantle of establishing their own cap and trade systems. However, not all states have an emissions volume large enough to create a liquid carbon market, and the risk of carbon emissions being exported to states without ETSs is high.

Northeast state governors established the Regional Greenhouse Gas Initiative (RGGI, often referred to as “Reggie”) to effectively limit carbon emissions through using a declining cap on carbon emissions in the power sector. RGGI is a bipartisan initiative that could continue to grow and serve as a future model for the rest of the US. Since its establishment, New Jersey has exited and rejoined RGGI, and Virginia has joined RGGI, though Virginia’s new governor has announced that he would like Virginia to leave the initiative.

Most recently, Pennsylvania began the process of entering RGGI. This is particularly significant because Pennsylvania is the third largest generator of electricity in the country and the first major fossil fuel-producing state to take steps to join RGGI. While nuclear power has grown as a generation source (specifically in the power sector), coal and natural gas still account for more than 50% of generation sources. Joining RGGI is an integral part of Governor Wolf’s climate change mitigation plan, which sets a goal of reducing state greenhouse gas emissions by 26% by 2025 compared with 2005 levels. Pennsylvania joining RGGI has the potential to shift the state’s economy further away from fossil fuels for electricity production and have a measurable impact on US carbon emissions.

RGGI Aims to Enhance States’ Emissions Reductions

Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont signed a memorandum of understanding outlining RGGI in 2005, and Massachusetts, Rhode Island, and Maryland signed on in 2007. RGGI went into effect during 2009.

RGGI includes fossil fuel power plants of at least 25 MW, and these power plants report their emissions annually to meet 3-year compliance period levels. Allowances are distributed through an auction each quarter. The participating states agreed to use at least 25% of funds for consumer benefit programs, which have included energy efficiency programs and electricity bill assistance.

RGGI provides an effective structure for states to collaborate on emissions reduction with potential for greater carbon reduction. However, as Part 2 of this blog series will discuss, RGGI is still limited in its market size and carbon reduction impact. Part 2 will also explore how Pennsylvania joining RGGI could impact those limitations.