Under the rules set up by states participating in the Regional Greenhouse Gas Initiative (RGGI), voluntary renewable energy purchases may count towards the emission reduction aims of the program. The first mandatory carbon dioxide (CO2) cap-and-trade program to be implemented in the U.S. and scheduled to commence in January 2009, RGGI covers the electric power generation sector in 10 states in the Northeast and Mid-Atlantic regions of the U.S. Under the program, CO2 emissions from power plants in the ten-state region will be capped and then reduced to 10% below 2009 levels, by 2018.
Each participating state has a proportional share of the regional emissions cap. Based on its CO2 emissions budget, each state will issue CO2 allowances to emitting power plants. Each CO2 allowance represents a permit to emit one ton of CO2. The states will sell all or a portion of their CO2 allowances via periodic auctions, beginning with pre-compliance auctions in September and December of 2008. Proceeds from the sale of allowances will fund state programs that promote energy efficiency and projects for renewable energy.
Renewable energy generation sources typically do not emit CO2 (or emit significantly less than fossil fuel generation sources). Without an emissions cap, renewable energy generation displaces fossil generation on the margin, resulting in a reduction of carbon emissions. However, where CO2 emissions are capped and the number of allowances is fixed and distributed only to emitting sources, renewable energy purchasers cannot claim CO2 emissions reductions, because their purchases do not reduce the number of allowances in circulation. Instead, their purchases simply free up more allowances that emitters can trade. Only the retirement of allowances, or a reduction in the number issued, reduces overall CO2 emissions levels. Purchasers’ inability to make claims …