There were two significant carbon pricing developments this past week and Pennsylvania figures prominently in both. The Transport Climate Initiative (TCI), composed of 13 northeastern and mid-Atlantic jurisdictions, released a framework for a cap-and-trade market covering oil and gas suppliers. In addition to joining TCI, Pennsylvania also plans to join the Regional Greenhouse Gas Initiative (RGGI) via an Executive Order. RGGI was launched over 10 years ago and covers the power sector. Although its prices are a fraction of those found in California, RGGI has been credited with driving substantial emissions reductions without harming economic growth and driving investments to make businesses and households less energy dependent.
Pennsylvania is a major emitter of US greenhouse gas emissions owing to its natural gas and coal sectors. With the state set to join RGGI, carbon prices are poised to rise substantially from the current level of $5.50 per ton. In terms of transportation, crucial design elements of the TCI are still being determined but the transportation sector will most certainly start off with much higher prices. This is due to the lack of competitively priced alternative fuels available for vehicles in the TCI region. I’d expect TCI pricing to start at $15, which is more in line with the California’s economy-wide carbon cap. Such pricing portends well for the development of offset projects under TCI as a cost containment measure. Though not quite as ambitious as an economy-wide program, tackling two major emitting sectors with market-based approaches illustrates again that cap-and-trade is the most practical carbon pricing policy when it comes to balancing economic performance with emissions reductions.