Audit, Compliance and Risk Blog

Northeastern States Propose Regional Cap-and-Trade Program to Reduce Greenhouse Gases From Transportation

Posted by Jon Elliott on Tue, Feb 04, 2020

Blurred truckAfter nearly a decade of talking and planning, most of the northeast and middle Atlantic states (plus the District of Columbia) in the Transportation and Climate Initiative (TCI) have proposed a cap-and-trade program intended to reduce greenhouse gas (GHG) emissions from transportation. On October 1, TCI issued a “Framework for a Draft Regional Policy Proposal,” and on December 17 a formal “Draft Memorandum of Understanding (MOU)” that jurisdictions can sign to formalize their participation. If things go well, the formal program should begin in 2020.

What is the Transportation and Climate Initiative?

In 2010, 11 states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont) plus the District of Columbia signed a Declaration of Intent to work collaboratively to reduce GHG emissions from the transportation sector. Virginia joined in 2018. The Declaration was signed by the heads of state-level environment, energy and transportation agencies. TCI has been intended to build on other multi-jurisdictional collaborations, including the multistate Regional Greenhouse Gas Initiative (RGGI), through which the same jurisdictions have worked to reduce GHG emissions from electric power plants (I most recently discussed RGGI here). The agencies have discussed a wide range of issues, including:

  • A low carbon fuel standard, to reduce emissions.

  • Changes in transportation systems and land use, to improve efficiency.

This framework has continued to develop, with examples of projects in individual jurisdictions, and creation of additional details. Most recently, in December 2018 ten of the jurisdictions (excluding Maine, New Hampshire, and New York) issued a TCI Statement repeating policy commitments and focusing on practical short term steps:

  • Regional policy design

  • Expert consultation

  • Further stakeholder engagement

  • Technical, environmental, and economic analysis

  • Complementary policy development

What is Included in the Draft Regional Policy Framework?

On October 1, 2019, TCI published a renewed Policy Framework, intended as a high-level policy framework for public input. The Framework includes the following design elements:

  • Equity, which includes environmental justice, non-discrimination and meaningful public participation

  • Applicability, addressing affected fuels and emissions, and regulated entities

  • Compliance and enforcement, including emissions reporting requirements, and monitoring and verification

  • Flexibility and cost containment

  • Auctions and allocations

  • Regional caps, and allowance budgets for each jurisdiction

  • Program administration, including market monitoring and auction administration

  • Investment of proceeds, from the auctions into eligible projects and programs in each jurisdiction

  • Complementary policies, such as air quality and pollution limits, improved public health and safety, and land use governance

What is Included in the Draft MOU?

On December 17, 2019, TCI published a draft MOU, as the basis for the binding agreement to be entered into by participating jurisdictions. The draft includes ten “whereas” statements to provide background and justification for the effort (including “WHEREAS, continued collaboration on clean transportation strategies, including regional electric vehicle charging infrastructure; improved multi-modal transit infrastructure; more sustainable freight movement; and support for lower carbon fuels will provide greater economic, social and public health benefits to residents and communities across the region than if each jurisdiction acted alone.”). The heart of the MOU consists of the commitment to create model requirements for each jurisdiction to adopt, administer and enforce, plus the overarching regional mechanisms. Formally, the MOU provides the following nine “Be it resolved” statements:

  • NOW, THEREFORE BE IT RESOLVED, that the undersigned Signatory Jurisdictions hereby enter into this Memorandum of Understanding to express their commitment to collaborate on the establishment of a regional program to transition to a more sustainable, resilient, lower carbon transportation sector that provides their residents with more transportation options, improved air quality and public health, and economic opportunity; and

  • BE IT FURTHER RESOLVED, that the Signatory Jurisdictions will seek to implement a regional cap-and-invest program, through the implementation of individual programs in each Signatory Jurisdiction, that will ensure emissions reductions and enable Signatory Jurisdictions to strategically invest in programs to help their residents transition to affordable, low-carbon transportation options that provide substantial public health benefits, reduce congestion, and increase economic and job opportunities; and

  • BE IT FURTHER RESOLVED, that Signatory Jurisdictions will work with communities to ensure that the benefits of a cap-and-invest program flow equitably to communities that are underserved by clean transportation alternatives, disproportionately bear the costs of the current transportation system, or suffer disproportionate impacts of vehicular pollution and climate change; and

  • BE IT FURTHER RESOLVED, the Signatory Jurisdictions will establish in the final memorandum of understanding (MOU) a regional carbon dioxide emissions cap that will decline over time, to reduce emissions from on-road diesel and finished motor gasoline, and an objective methodology for apportioning proceeds to each Participating Jurisdiction, to invest at each jurisdiction’s discretion to support the goals of the program; and

  • BE IT FURTHER RESOLVED, that Signatory Jurisdictions will jointly develop a Model Rule in accordance with this memorandum, including Appendix, that will:

    • Implement the regional cap to reduce CO2 emissions, from on-road diesel and finished motor gasoline.

    • Develop a process for auctioning emission allowances.

    • Require regulated fuel suppliers to hold allowances to cover emissions from regulated fuels and report emissions to each applicable jurisdiction.

    • Provide flexibility and ensure market stability, which may include a three-year compliance period, cost-containment and emissions-containment mechanisms, provisions to allow for the banking of allowances, and alternative compliance mechanisms such as offsets.

  • BE IT FURTHER RESOLVED, that each Signatory Jurisdiction will follow any required legal processes within each respective jurisdiction to implement the program in accordance with this memorandum and the Model Rule as soon as practicable.

  • BE IT FURTHER RESOLVED, that the Signatory Jurisdictions seek to create as large a regional market as possible to enable the most cost-effective emissions reductions. The program will include provisions that enable seamless expansion, for jurisdictions that will participate in the program after the initial launch of the regional program, as well as for other jurisdictions to participate in the program.

  • E IT FURTHER RESOLVED, that Signatory Jurisdictions remain committed to regularly assess the program’s effectiveness in meeting shared greenhouse gas emissions reduction, resilient transportation, and equity goals.

  • BE IT FURTHER RESOLVED, that Signatory Jurisdictions recognize that meeting greenhouse gas emissions reduction goals will require additional measures and collaboration in pursuing complementary policies and programs to enable further transportation greenhouse gas emission reductions and achieve other shared policy goals.

TCI’s goals is program that caps and reduces global-warming carbon dioxide pollution from combustion of gasoline and on-road diesel fuel by up to 25 percent compared to 2022 levels over 10 years. Since these emissions are estimated to constitute 40% of the region’s GHG emissions, success would reduce regional emissions by 10% (25% of 40%) in a decade. (For comparison, see my discussion of California’s cap-and-trade program here).

What’s Next?

TCI has requested comments by February 28, 2020. After that, it plans to produce a final MOU for signature by as many of the 13 jurisdictions as possible. This approach matches that for the model requirements and overall structure of the RGGI program.

Self-Assessment Checklist

Does the organization have operations in any of the 13 TCI jurisdictions?

  • Do these include gasoline or diesel fueled vehicles?

  • Might they include operations eligible for state programs investing TCI auction proceeds?

Where Can I Go For More Information?

Specialty Technical Publishers (STP) provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. 

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About the Author

Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years. 

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:

Tags: Business & Legal, Environmental risks, Environmental, Greenhouse Gas, ghg, cap-and-trade