On 30 September 2019, ten northeast and mid-Atlantic US jurisdictions of the Transportation and Climate Initiative (TCI) released a draft framework outlining basic design features of a regional transport sector ETS starting in 2022. The framework is part of a design process that has included public workshops, webinars, and expert consultations as well as technical, environmental, and economic analyses.
The framework is now open to public comments until 5 November 2019. Additional details on the features of the proposed ETS as well as further modelling results of the environmental and economic implications of different cap levels and investment scenarios will then be released as part of a draft memorandum of understanding (MOU). The MOU is expected to be signed by all participating member states by the end of 2019.
The framework includes general information on participating sources, compliance and enforcement requirements, flexibility and cost containment mechanisms, and provisions for the use of revenue. Further program details such as the cap and the decline factor are yet to be decided.
Scope
The program would cap the CO2 emissions from the combustion of gasoline and on-road diesel fuel in the region. The scheme would apply upstream with compliance obligations falling to suppliers which produce the covered fuels within the participating states as well as suppliers which import them to the participating states. It is yet to be decided whether or not biofuels will be included in the scheme.
Allocation
Auctions would be the primary mechanism of distributing allowances, with the program intending to auction nearly 100% of its allowances.
Cap
The program would begin with an initial emissions cap which would then decline every year at a rate to be agreed on by TCI jurisdictions. The initial cap would be set using a combination of baseline emissions for three recent years, and projected emissions estimated through modeling. Each jurisdiction’s allowance budget would be a percentage of the cap.
Flexibility instruments
The program would incorporate flexibility mechanisms such as banking of allowances and multi-year compliance periods. Also, price-based market stability mechanisms such as a cost containment reserve, an emissions containment reserve and/or a minimum reserve price may be introduced. As possible examples for such instruments the framework specifically mentions the supply-curbing Emissions Containment Reserve and the price-limiting Cost Containment Reserve from the Regional Greenhouse Gas Initiative (RGGI) as well as Auction Reserve Prices as used by both RGGI and the Western Climate Initiative (WCI).
MRV
Reporting would be based on existing programs such as the US Energy Information Administration (EIA) and its requirements for fuel suppliers operating in the US. Emissions reporting would be required on a monthly or quarterly basis. In order to guarantee the accuracy of reported data, jurisdictions would use third-party verification, agency verification, or self-certification. Existing platforms would be used for the accompanying allowance tracking system.
Auction revenue
Each participating jurisdiction of the TCI would independently decide how proceeds are invested to achieve carbon emission reductions and other policy goals.
Linking
TCI Jurisdictions are considering linking with other programs with similar flexibility mechanisms, such as RGGI or WCI.
Equity