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Can Free Enterprise Help Manufacturers Reduce Their Carbon Releases?

The Clean Power Plan may be tied up in the courts right now. But manufacturers are still looking for ways to reduce their carbon footprints, fully expecting the reg to make it through its current legal entanglement. One thing catching their eye: a free market approach that would allow them to trade credits with other companies and across state lines, or cap-and-trade, which is just one way the states and their corporate customers could meet the 32 percent cut in carbon emissions by 2032.

The Northeast and California are leading the charge, having created free market exchanges to buy and sell credits to reduce carbon levels — mechanisms that each say is helping to broaden their generation mixes and to boost their economies.

“The 2016 RGGI cap is 86.5 million short tons. The RGGI cap declines 2.5 percent each year until 2020,” says the Regional Greenhouse Gas Initiative, or RGGI, as it relates to its findings in the first quarter of this year.

RGGI has 9 participating states that include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. Among the utilities supporting the pact as a compliance framework are Calpine Corp., Consolidated Edison, Exelon Corp, National Grid and NextEra Energy, which among other things are required to provide renewable energy to corporate customers.

As for RGGI, it says that its participating members have reduced their heat-trapping emissions by at least 40 percent since 2005.

Participating states have done so by, primarily, by requiring renewable portfolio standards and by implementing a cap-and-trade system, which is something that EPA’s Clean Power Plan is encouraging other states to do. Such a free-market mechanism limits the amount of relevant releases for utilities. Those companies that can’t meet the standards must buy credits. The aim is to get facilities to implement new pollution control technologies or to switch to low-carbon fuels.

With that, though, the RGGI wants the US EPA to learn from its successes: It has a declining cap and a corresponding change in the cost of carbon allowances, all of which creates market signals to support fuel switching and on-site efficiency. Meantime, the auction system there provides monies to develop renewable technologies.

“The average number of auction participants increased from 45 in 2014 to 50 in 2015. Participation by many firms promotes competition and helps ensure that CO2 allowance prices are determined efficiently,” says an analysis by Potomac Economics.

The results, according to the Analysis Group: Not only have carbon dioxide emissions nosedived but the regional economy has also grown by more than $1.6 billion in economic value. Consumers, meanwhile, have saved $1.1 billion in electricity bills, and 16,000 new jobs have been created region-wide.

California, meantime, is also ahead of EPA’s curve, having implemented both a cap-and-trade program as well as a renewable portfolio standard of 33 percent by 2020. The state also has a renewable portfolio standard to require incumbent utilities there to hold a third of their electric generation assets in green energy by 2020.

All are expected to surpass that standard: PG&E Corp. and Southern California Edison are expected to hit the 37 percent threshold while San Diego Gas & Electric will reach 43 percent.

Critics of cap-and-trade say that carbon is a global issue that cannot be solved by regional programs like the ones being advanced by RGGI and California. They furthermore say that the programs are nothing more than a tax on electricity, adding that if the price per ton is low then end-users would find it easier to buy credits — not to make environmental upgrades.

That’s why it’s important to properly design cap-and-trade programs from the get-go — and not to give away too many credits so as to saturate the market. That does dissuade companies from making retrofits to their manufacturing plants.

Can other parts of the nation learn from California and the northeastern United States? Would industrial facilities take part in cap-and-trade programs if they were available to them?

To say that carbon is global problem and that regional programs won’t work is misguided. Today, more than 40 nations are trying to set up some type of carbon pricing plan, including China. The two cap-and-trade networks in the United States are laboratories for the rest of the country.

The plans, both globally and in the United States, may be relatively young but such cap-and-trade programs deserve a chance to prove themselves.

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