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Assessing the Regional Greenhouse Gas Initiative as a Model for Further Regional Initiatives

By: Lila McNamee, Kellen Carpenter and Eric Vo

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What is RGGI?

The Regional Greenhouse Gas Initiative (RGGI) was established in 2005 when 7 states signed a Memorandum of Understanding detailing their commitment to reducing power sector carbon emissions in the north-east and mid-Atlantic regions. The states committed to the RGGI include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey (which temporarily withdrew in 2012 and rejoined in 2020), New York, Rhode Island, Vermont, and Virginia. In RGGI, power plants would have to pay for each ton of carbon dioxide that they emit, which makes carbon emissions less attractive for energy producers. Originally, the RGGI established a cap on carbon dioxide emissions which was set at 188 million tons for all states. The limit was updated in 2012, following New Jersey’s withdrawal from the agreement, to 165 million tons. However, the 2022 cap has been set at just under 157 million tons. While this is lower than the 2012 cap, even with the rejoining of New Jersey, it is far higher than the allotment for 2021 emissions (just under 120 million tons). The states involved in the RGGI adopt individual shares of the overall cap and implement their carbon budgets at the state-level. Their shares and budget are based on both historical emissions and negotiations between participating states.

This legislation created the first mandatory cap-and-trade program in the United States. A cap-and-trade, or an emissions trading system (ETS), is one of the ways to put a price on carbon, other than a direct carbon tax. ETS sets a limit on the total level of greenhouse gasses emitted, but allows for different firms to trade and exchange their allowance of emissions if they do not need as much as they have been allotted. In RGGI, the trade of allowances is done through auctions. This process allows the government the ability to capture externalities, or third party damages created by carbon dioxide emissions, but also to create a market price for carbon. These two effects of the policy are crucial for its success. First, capturing the externality shifts the burden of carbon dioxide emissions from citizens to the producers. This shift creates a greater incentive for producers to limit their emissions as they will look to spend as little as possible on buying more carbon emissions, while keeping their production at the same level. Second, as the market price of carbon drows, producers will look for more innovative solutions which can lead to sustainable collaboration and new green technologies.

RGGI and policies like it are growing in popularity. In 2021 alone, global carbon dioxide emissions totaled 36.3 billion tons, the highest level ever recorded. These levels contributed to a global temperature rise of 0.8 degrees Celsius, with a 1.5 degree celsius increase already ‘locked in’. Scientists predict that if global temperatures rise by two degrees celsius, societies will see grave consequences such as increased health risks and widespread food shortages. The effects of temperature rises have already been seen in Asia: March was the hottest month ever recorded in India and Pakistan. These temperatures led to multiple deaths and warnings of more frequent heat waves in the future. Therefore, it is imperative that politics like RGGI continue to be implemented.

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Successes and Environmental Implications

Effectiveness will be analyzed by how well RGGI was able to reduce carbon emissions and keep them consistently lower than they were in the past. The strategy employed by RGGI has seen resounding initial success in reducing carbon emissions. Comparing data from the U.S. Energy and Information Administration (EIA) between the years 2004 (one year before the RGGI was passed) to 2009 (one year after the first auction), north-east and all mid-Atlantic states (excluding Pennsylvania, which is not involved in RGGI) saw great reductions after the enactment of RGGI. Further, between 2004 and 2019 (the most recent data from the EIA), carbon emissions dropped by a total of 16.93 million metric tons across 11 states, falling from 761 million metric tons to 591.7 million metric tons. There were also five states (Maine, Maryland, Massachusetts, New Hampshire, and New Jersey) which saw a consistent decrease in emissions. This data can be compared to states like Texas and Arizona, which saw greater levels of carbon emissions in 2019 than 2004.

The overall and consistent decrease in emissions from RGGI states proves that the program is performing well and has made a large impact. In this case, efficiency can be defined as how quickly state governments were able to put RGGI into action, and how quickly they met the goals that were outlined originally in 2005. While the Memorandum of Understanding was created in 2005, it took three years for the first emissions auction to take place, and then one more year to measure the effects of that auction. This began RGGI’s first compliance period, which took place from 2009-2011. At the end of 2011, member states could measure their compliance with the initiative. In 2009, the cap was set at 188 million metric tons to be traded, but the actual emissions were much lower, at around 120 million metric tons. Therefore, while it took a few years for the program to truly begin, the reduction in carbon emissions began immediately and has continued to stay low, thus making it a very efficient program.

RGGI is important because it combats the effects of climate change. As a result of climate change, which is a consequence of the emission of dangerous air pollutants, many natural systems are facing extreme detriment. Further, there is a link between carbon emissions and the acidification of the ocean. Because of carbon emissions, the atmospheric concentration of CO2 has increased drastically from about 305 parts per million in 1960, to 394 parts per million in 2012. Increasing levels of carbon in the atmosphere raises the temperature of the globe and makes the oceans increasingly acidic. Historically, the carbon levels absorbed and released from the oceans have been balanced, yet the influx of carbon in the atmosphere causes the oceans to absorb more carbon than they can release. This adversely affects marine life including, but not limited to, dissolving the calcium shells of the krill and plankton that comprise the base level of the aquatic food chain. Ocean acidification can be limited by cap and trade programs, which curb carbon emissions from power plants, which have huge effects on marine function. This is yet another reason that RGGI and programs like it are valuable to environmental health and reducing dangerous air pollutants that affect vital marine functions.

As of July 2022, the Democratic Republic of Congo has set its sights on leasing out land from its national parks for oil and natural gas extraction. Having Southern Africa’s second highest crude oil reserves the DRC has defended its right to drill citing that this plan will help promote the DRC to become a “solution country”. As the DRC removes one of the world's major natural carbon sinks, it is imperative for developing countries to enact monetary schemes to reduce net carbon emissions. Carbon markets, such as the RGGI, offer an economic model in which nations are able to dissuade fossil fuel producers from drilling for more oil while incentivising investors to look into greener alternatives. In theory as more carbon pricing schemes are implemented, demand for fossil fuel will stagnate and eventually be phased out. It is not to say that the RGGI scheme—or even any carbon pricing scheme—is the panacea for climate change, however, it is a policy which can be a catalyst for more sustainable change.

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