RGGI states now aim at fuel emissions

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As the United States’ first greenhouse gas emissions trading scheme formally comes into effect, emission permit prices are on the rise for power plants. Meanwhile, participating states are now turning their sights to regulating carbon in transport fuels.

The Regional Greenhouse Gas Initiative (RGGI), nicknamed ‘Reggie’, officially began on January 1 to curb the carbon dioxide emissions of power plants in ten states in the US North-East, including New York, New Jersey and Massachusetts. Now these ten states, plus Pennsylvania, have announced plans to draw up carbon standards for transport fuels by the end of 2009.

The Low Carbon Fuel Standard would force refineries to reduce the carbon footprint in their gasoline and diesel by such measures as adding biofuel into the mix.

“Working together, the 11 states from Maine to Delaware will cut greenhouse gas emissions from cars and trucks, spur the development of clean energy technologies like advanced biofuels and electric cars, and reduce our dependence on petroleum,” the Massachusetts Secretary of Energy and Environmental Affairs, Ian Bowles, said in a statement.

California has already implemented road transport emission standards under a different approach. It requires carmakers reduce greenhouse gas emissions per mile travelled in their vehicles.

The North-East states say their fuel standard will reduce greenhouse emissions and boost the market for clean energy technology. Biofuels emit similar amounts of carbon dioxide to fossil fuels when burnt. But because they are derived from recently-grown plants which take in CO2 to grow, net emissions over the life cycle of their production and consumption is deemed to be zero.

Rising prices

RGGI emission permit prices have risen in recent weeks with the arrival of the formal start of the scheme. Running from 2009 to 2018, RGGI effectively began to operate in mid-2008 when the auctioning and forward trading of permits began.

By the close of trade on January 8, prices were sitting at $4.20 per ton of CO2 on the NYMEX exchange, up from $3.45 in early December. The last permit auction in mid-December saw 31.5 million permits cleared at a price of $3.38, up from the $3.07 in the first auction in September.

RGGI requires participating states to stabilise power sector CO2 emissions at a capped level until 2014. The cap will then be reduced by 2.5 per cent each year to 2018 for a total reduction of 10 per cent. Analysts say the cap is weak and set higher than emissions might otherwise be during the period anyway.

The descent of the US economy toward recession by the start of 2009 does not bode well for RGGI permit prices nor the scheme’s aim to bring about real cuts in emissions.

A regional cap and trade scheme among Western US states and Canadian provinces is being drafted to begin in 2012. However, both regional schemes are expected to be superseded by national laws to implement emissions cap and trade by the incoming Obama administration in Washington DC.