US-Transportation and Climate Initiative (TCI) to design carbon pricing mechanism

On December 18 2018, ten Northeast and Mid-Atlantic US jurisdictions of the Transportation and Climate Initiative (TCI) released a statement that announces the design of a regional low-carbon transportation policy proposal to set up a carbon pricing mechanism to reduce transport emissions. The participating jurisdictions, as of 18 December, include the states of Connecticut, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Vermont and Virginia, as well as Washington D.C.

Tackling transport sector greenhouse gas (GHG) emissions is pivotal for ambitious climate policy as the sector accounts for the largest source of GHG emissions within the TCI jurisdictions and the United States in general. However, research shows the need for additional decarbonization efforts as existing policies will not be sufficient to achieve the reductions needed from the transport sector to reach the states’ overall goal of an 80% emissions reduction by 2050. Implementing a carbon pricing instrument on the regional level has significant benefits as the TCI mostly consists of small states with a high percentage of commuters, highlighting the importance of a harmonized approach to pricing transport fuels.

The statement of 18 December is the result of several years of consultations and negotiations between the 13 members of the TCI which also comprise Maine, New Hampshire, and New York. Those three states, however, have at this point not endorsed the plan for the policy proposal. According to the TCI announcement, the proposal is supposed to cap and reduce carbon emissions from the combustion of transportation fuels by introducing a “cap-and-invest” program or other pricing mechanism. This name emphasizes the possibility for TCI jurisdictions to raise revenue through the program and invest it into low-carbon and resilient transportation infrastructure projects. If implemented, it would be the first cap-and-trade program focused solely on the transport sector.

The press release accompanying the statement indicates that the initiative aims to complete the design process over the course of 2019, with the aim to publish a first draft proposal before the end of that year. Once the proposal is completed, participating states can still decide whether or not they will be adopting and implementing the associated policy. This process would be similar to the Regional Greenhouse Gas Initiative, where member states transpose a jointly developed Model Rule into state laws and regulations. 

As part of the design process, the participating states plan to engage in expert consultations, conduct public stakeholder engagements as well as undertake technical, environmental and economic analyses of the benefits and costs of a regional transportation policy. TCI states also aim to explore the design and potential implementation of complementary policies. Specific elements mentioned in the statement that are to be covered during the design process are:

• Determination of a cap level;
• Establishing MRV guidelines;
• Identification of covered entities and fuels;
• Development of cost containment mechanisms and compliance flexibility;
• Specific revenue usage.