Exploring the increased role of carbon markets in wake of the Clean Power Plan
USEPA’s Clean Power Plan requires states to reduce power plant emissions by 30% from 2005 levels by 2030.  States are given some flexibility in how they choose to meet the standard, but they are required to submit compliance plans detailing their approach by June 30, 2016.  While a variety of compliance mechanisms are available, including greater investments in renewable energy, energy efficiency, and demand-side management and smart-grid technologies, creating state or regional cap-and-trade programs seems to be an early front runner.

Some states had carbon markets in place even prior to the release of the Clean Power Plan.  Nine states in New England currently participate in the Regional Greenhouse Gas Initiative, the first market-based regulatory program in the US to reduce greenhouse gas emissions.  The program was launched six years ago.  A cap of 91 million short tons of CO2 was introduced in 2014, with the cap decreasing by 2.5% each year between 2015 and 2020.  California, another early adopter, has a cap-and-trade program that operates slightly differently.  Carbon allowances are auctioned each quarter by the California EPA’s Air Resources Board.  The most recent auction set a floor price, or minimum allowable bid, at $11.34 per ton of carbon dioxide.

Washington is the most recent state to jump on the bandwagon with the announcement of Governor Jay Inslee’s proposed a cap and trade program in mid-December.  The plan was proposed to help meet reductions set forth in Inslee’s Carbon Pollution Accountability Act in 2008.  Compliance plans for these states could be as simple as lowering the cap to a level that guarantees emissions reductions to CPP limits.

Even states without formal carbon markets have systems in place to help facilitate their creation.  For example, the Western Interconnection (comprised of Washington, Oregon, California, Idaho, Nevada, Utah, Arizona, Colorado, Wyoming, and portions of Montana, South Dakota, New Mexico, and Texas in the United States) relies upon the Renewable Energy Generation Information System, or WREGIS, for tracking renewable energy credits.  State or regional compliance plans could involve leveraging this system for monitoring renewable generation or and the transfer of credits.

Whether state carbon markets will become common place for CPP compliance remains to be seen, but there is certainly an opportunity for their development.  States that have proven systems for reducing and measuring reduction in CO2 emissions will likely use them as the backbone of their compliance plans, and states with existing tracking renewable energy credit tracking systems may make use of them for the creation of a state market.