California’s recently completed implementation plan for the Environmental Protection Agency’s Clean Power Plan illustrates how easily a cap-and-trade system can be used to comply with the regulations, Dallas Burtraw, Darius Gaskins senior fellow at Resources for the Future, said during an RFF event Friday. “The way they imagine complying with the federal Clean Power Plan while they have a cap-and-trade program in the state that covers all sources, they’re just going to stay the course, implement cap and trade covering all sources,” Burtraw said.
The CPP, carbon emissions standards for existing coal-fired power plants, requires states to submit action plans to meet federally set carbon emissions reduction goals.
The document, as written, mandated that states submit initial plans, or requests for an extension, by September. However, the Supreme Court in February unexpectedly voted 5-4 to halt implementation of the rule. All compliance deadlines that hit while the Clean Power Plan is undergoing legal challenge will now be delayed, including the submission deadline for implementation plans.
Regardless, California pushed ahead with development of its implementation plan. The state went with a “state measures” approach allowable under the CPP, which gives states significant leeway on how they meet their targets. The state measure in California’s case is the existing cap-and-trade program, which launched in 2012. “This plan type allows for operation of an economy-wide state emissions trading system as a compliance approach, provided that the state includes certain federally enforceable emission standards for CPP-covered electricity generating units (affected EGUs) at the outset,” the plan explains.
Several other states are likely to look to market-based compliance plans such as cap and trade, carbon taxing, and carbon pricing. While economists widely accept market-based options as the most efficient means of emissions reduction, there are downsides to a state-by-state system. “One of the disadvantages of having state-based policies, at least from a Washington, D.C., perspective is that there’s no possibility for having any kind of revenue at the national level or any kind of coordinated pricing,” Burtraw said.
Such a system can work, at least for a while, said Rachel McCormick, counselor and program manager for energy and environment with the Embassy of Canada. “In Canada right now we have different systems; we have tax in two provinces, we have cap and trade in another province and coming into another one. Each of those provinces keeps the revenues and uses them as they see fit. Right now, it’s working well, and I think the conversation in Canada really is about how do you fit that together and what is the federal role on top of that,” she said.