The Next Big Thing in Carbon Markets? RGGI to Implement an Emissions Containment Reserve (Resources)

As the first cap-and-trade program in North America, the Regional Greenhouse Gas Initiative (RGGI) has had an outsized influence on the design of similar programs worldwide. The Initiative is a market-based program that sets a cap on COemissions from the electricity sector in nine northeastern states (USA) and allows trading of emissions allowances in order to achieve compliance at the least possible cost. RGGI now plans to implement an innovative new mechanism to help reduce price volatility in the allowance market: an emissions containment reserve (ECR). The ECR mechanism would enhance the existing market and support the allowance price by making the supply of allowances responsive to the market price, in the same way most commodity markets work. An analysis undertaken by Resources for the Future (RFF) indicates that an ECR supports allowance prices when allowance demand is lower than anticipated leads to a sharing of the benefits of lower-than-expected compliance costs among economic and environmental interests. The report, featured in Resources Fall 2017 issue, is available on the Resources for the Future website.