Carbon Caps and the Power Sector: Global Goals, Essential State Roles
The Regional Greenhouse Gas Initiative (RGGI) was the first cap-and-trade program in the United States to cover carbon emissions from power plants. RGGI chose to auction allowances, rather than give them away for free, enabling investment of the auction proceeds in energy efficiency and other consumer programs—a “cap-and-invest program.” Drawing on his experience with RGGI, Dave Farnsworth spoke at a Vermont Law School air pollution seminar about the evolving nature of the cap-and-trade mechanism, the rationale behind choosing to auction allowances, and the need to view this instrument as part of a larger carbon strategy.
A conventional “top down” cap-and-trade approach that relies on price alone is more expensive and less likely to succeed than a portfolio-based policy menu with a cap. By coordinating cap-and-trade policies with other strategies, such as energy efficiency, renewable energy, and demand response programs, an overall reduction of carbon emissions can be achieved at lower cost to consumers. Cap-and-invest also provides a strong model for state compliance under the United States Environmental Protection Agency’s Clean Power Plan.