Markets working to support sustainable development

Regional Greenhouse Gas Initiative (RGGI)

The Regional Greenhouse Gas Initiative (RGGI) is the first mandatory cap-and-trade greenhouse gas emissions reduction scheme in North America. It brings together nine US states.

A cap-and-trade system issues permits to particpating firms, granting them the right to pollute up the total allowable amount and no more. As such, these firms must declare permits equivalent to their total emissions. But, they can also buy and sell the permits - a company with surplus allowance can sell their permits to another firm that requires more. The total allowable CO2 emmissions is then determined for the area, rather then a blanket cap on individual companies.

The initial region wide cap on CO2 emissions was set at 188 million short tons (1 short ton = 2000lbs or approximately 907kg) per year. The RGGI is effectively a collection of 9 individual emissions trading systems with each state responsible for managing its own. For the period 2009-2014 participating states must stabilise their emissions at or below the cap. From 2015 to 2018 the cap then reduces by 2.5% per year resulting in a 10% overall reduction by 2018. By decreasing the cap, scarcity is introduced to the system which makes the market of value of these permits increase. As such, out of a concern for profits, firms will invest in new technologies, such as clean energy, to enhance their own efficiency.

 

Market coverage: 

The scheme covers 9 US states - these are:Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. New Jersey left the scheme in 2011.

Background information: 

Regional Greenhouse Gas Initiative Inc. is a non-profit organisation based in New York that promotes and facilitates the RGGI across the nine states. And the heads each state's respecitive energy and environment agencies sits on the Board of Directors. 

Funding source: 

Cumulatively, the auctions have raised over $1,339,425, 949 since operations began in 2008. One auction alone raised (April, 2013) $102,552,144. The majority of this is spent on implenting the scheme itself and the rest is invested into alternative energy projects.

Notable information: 

Unlike other cap-and-trade systems such as EU ETS all allowances are auctioned, rather than being given away. This auction raises funds for the continued running of the RGGI as well as financing investment in renewable energy and energy efficiency.

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