Over the next few months, the Transportation and Climate Initiative (TCI) will be forecasting the impacts of setting up a cap-and-trade system for transportation in the Northeast and Mid-Atlantic states. This forecast will be critical to the GHG reduction targets that TCI attempts to achieve, and thus whether it will make much of a difference to emissions in the region.
Climate XChange submitted a set of technical comments to the TCI modelers, intended to get forecast runs that will give us accurate information on what TCI can accomplish in the region.
The basic principle of cap-and-trade is that a group of states sets a cap on emissions that falls over time; they auction off allowances (permits) to polluting entities, for each ton of CO2 emitted; the auction yields a price for allowances which will be added, in part or whole, to the cost of gasoline and diesel motor fuel. The cap then determines the reduction in GHG, which would ideally be as large as possible. At the same time, the tighter the cap, the higher the price increase will be – and states will try to avoid raising prices, as it could become politically problematic.
Getting good forecasts on the relationship between the cap level and price increases is therefore critical. The TCI states have hired outside modeling experts to conduct the forecasts. Our comments are therefore, most relevant to them and to the state staff directing them, and we hope to influence their approach and considerations in this process. Our comments covered:
- Separate the GHG reductions resulting from the expected rise in fossil fuel prices, from reductions that result from revenue investment into GHG-reducing activities (such as improving mass transit).
- Construct a forecast with a tight cap on emissions, which would lead to higher allowance prices; and compensate for this by returning part of the revenues in cash to consumers.
- Show the GHG reductions at the individual state level, allowing states to see how the cap would contribute to their own targets for reducing GHG (such as 80% by 2050).
- Measure oversupply of allowances, which buyers can hold and use later (“bank”), and which can force actual emissions to go above the cap levels in later years.
We will find out in the next few months to what degree the state’s staff and modelers follow our recommendations!
Read more about TCI: