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Viewpoint: US carbon markets to expand next year

  • Market: Emissions
  • 30/12/20

US cap-and-trade markets are poised for growth, with a number of states and regions looking to emulate the long-running programs in California and the east coast.

Washington state governor Jay Inslee (D) is reviving his efforts to create a greenhouse gas (GHG) cap-and-trade program.

Inslee this month [called for legislation] (https://direct.argusmedia.com/newsandanalysis/article/2169768) that would direct state regulators to establish a carbon market to reduce GHG emissions from major industrial sources and from on-road transportation fuels.

If Inslee is successful in adding a cap-and-trade program in his state, then the entire US west coast would be covered by carbon markets.

Oregon regulators will spend 2021 creating a new CO2 emissions trading program covering output from much of the state's economy. The state Department of Environmental Quality (DEQ) says it will commence the rule-making for its "cap-and-reduce" program next month, kicking off a series of public hearings that will run through June.

The regulations will set CO2 limits on Oregon emitters, including large industrial facilities, transportation fuels and natural gas, and could establish a credit trading program to help with compliance. The program is scheduled to start in 2022.

And in the northeast, a cap-and-trade program to reduce CO2 emissions from on-road transportation fuels is set to launch in 2022.

Connecticut, Massachusetts and Rhode Island, along with the District of Columbia, this month committed to launching the Transportation and Climate Initiative Program (TCI-P) in 2022, while another eight states that have participated in talks around the carbon market have opted not to join at this time.

The initial four TCI-P members have signed an initial agreement that sets the basic framework for the new market, including its starting CO2 limit and flexibility measures, with many details to be filled in during 2021. The participants said the new program will cut CO2 emissions from cars and trucks by at least 26pc from 2022-2032 and generate more than $3bn in revenue for its members.

Many of the states involved in the TCI-P discussions are also members of the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program for power plant emissions that is set to expand in 2021 with the addition of Virginia. Pennsylvania regulators will spend the new year finishing work on a proposal to make the state the largest member of RGGI as soon as 2022.

The flurry of state activity comes as president-elect Joe Biden prepares to take office, with his administration likely to help the state and regional carbon markets to flourish in the coming years.

One of the first concrete steps the new administration can take to back the carbon markets would be to drop a federal lawsuit against the Western Climate Initiative. President Donald Trump's administration filed the suit last year, arguing that California lacked authority to link its cap-and-trade system with the Canadian province of Quebec.

California Carbon Allowances firmed immediately following the election, in part because of the likelihood that Biden's administration will drop the litigation.

"States like California that have been fighting President Donald Trump's administration to have state authority in the last four years can focus their attention on improving air quality instead of fighting back against obstruction," Environmental Defense Fund vice president Derek Walker said

Compliance carbon markets are not the only carbon markets that are likely to expand in scope next year. More companies are adopting net-zero emissions commitments and joining groups like RE100 and the Climate Pledge to support efforts to increase renewable energy use and slash emissions. This is leading to greater interest in the voluntary carbon markets.

The Covid-19 pandemic and the economic recession has not dampened corporate interest in setting GHG reduction goals.

"There have been additional commitments from companies on their own net-zero pathways and accelerating those pathways, looking at ways to go beyond carbon neutral to carbon negative," International Emissions Trading Association president Dirk Forrister said this year.


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Houston, 22 February (Argus) — California lawmakers will pursue reauthorizing the state's cap-and-trade program to control major emissions sources this legislative session, a move that could give market participants greater legal certainty. AB 1207, a bill filed 21 February by state representative and chair of the Joint Legislative Committee on Climate Change Policies Jacqui Irwin (D), would reauthorize the California Air Resources Board (CARB) to operate its cap-and-trade program to reduce greenhouse gas (GHG) emissions from sources such as power plants and transportation fuels. A 2017 law already extended the program out to 2030, but this new bill could allay concerns from the market amid a sluggish regulatory update to the rules and growing pressure from the federal government. CARB began weighing amendments to its cap-and-trade program in 2023, following the adoption of its 2022 scoping plan, which highlighted a need for increased program ambition to keep the state on track for its target of net-zero by 2045. Stakeholders have petitioned CARB to seek a formal reauthorization in the legislature to aid compliance planning and add legal certainty throughout its ongoing rulemaking procedure to potentially move the program to a 48pc GHG reduction target from 1990 levels by 2030, rather than the current 40pc. With CARB experiencing ongoing delays in twin rulemakings with market partner Quebec, a formal reauthorization represents a significant step in outlining the program's future, after months of uncertainty . This legislative action dovetails with the focus of the governor Gavin Newsom's (D) administration and budget writers, as they work to navigate growing tension with the federal government and projected multi-year deficits in the state's budget. Newsom announced his intent for lawmakers and the administration to focus on reauthorizing the state's program in January in his 2025-26 budget proposal, highlighting the revenue from the program. Cap-and-trade auction revenue enters the Greenhouse Gas Reduction Fund (GGRF), which supports the state's clean economy transition through programs targeting GHG emissions reductions. In recent budget talks appropriations of GGRF funds have come under scrutiny, with state Assembly Budget Climate Crisis, Resources, Energy and Transportation Subcommittee chair Steve Bennett (D) in a informational hearing on 19 February highlighting the need for lawmakers to ensure the revenue supports projects that will fulfill needed GHG reductions, as the chamber discusses reauthorization. Lawmakers have until 6 June to pass the bill out to the state Senate. By Denise Cathey Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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Republicans target US energy rules for disapproval


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Oil, biofuel lobbies unite for ‘robust’ RFS: Update


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