Regional Carbon Markets: Better Than Nothing?

If Congress fails to pass a national cap-and-trade bill, as looks increasingly likely, states are preparing to pick up the slack. Some of the more innovative policies they crafted during the at-best stagnant, at-worst hostile environmental reign of the Bush administration were regional carbon markets. Of the three existing groups -- the Regional Greenhouse Gas Initiative, the Midwestern Greenhouse Gas Reduction Accord, and the Western Climate Initiative -- only the East Coast's RGGI has a market that's currently up and running.

Representatives of the Western Climate Initiative said this week that its cap-and-trade system will begin trading carbon in January, 2012. The initiative launched in 2007 with five U.S. member states, but political pressures and economic worries have narrowed the pool of likely traders down to California and New Mexico plus the Canadian provinces of British Columbia, Ontario, and Quebec. Including Ontario and Quebec in a Western regional block is a stretch, but after Arizona dropped out and Utah and Montana failed to secure legislative approval, the group can't be too geographically choosy.

The total amount of carbon traded on this market -- which would be mandatory for certain companies operating in the participating states and provinces -- would be equivalent to about a tenth of U.S. emissions. Depending on how high member states choose to set the price of carbon, they could make a significant dent in North American emissions.

The eastern cap-and-trade system, which focuses on utilities, has been trading carbon at record lows of $2.05 and $1.86 thanks to a glut of permits on the market and the uncertainty of national cap-and-trade legislation. European prices, which have also been falling, hovered between €20 to €25 throughout most of 2008 and apply across a much broader range of industries. Experts have argued that prices would have to be at least €100 to significantly drive green investment.

Reuters cites a 2008 analysis that found a broad cap-and-trade system in the western U.S. could sustain a price of $24 per ton. The prospective participants in this system plan to start off trading power plant emissions and expand to the transportation sector by 2015.

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