Building on the collaborative effort that led to a market-based system to reduce greenhouse gas emissions from electric power generation, 10 Northeastern states are working to do the same for transportation fuels. The Regional Greenhouse Gas Initiative (RGGI) is an operational cap-and-trade system that will reduce GHG emissions by 10% between 2009 and 2018. The Low Carbon Fuel Standard is projected to generate a comparable reduction over a similar time period.
On the same day that the EPA issued the final rules setting greenhouse gas emissions standards for cars and light trucks, an Environmental Entrepreneurs (E2) lunch session in Boston hosted Massachusetts Department of Environmental Protection Commissioner Laurie Burt and two other speakers to talk about the work underway to establish the Low Carbon Fuel Standard.
In December, 2009, 11 governors signed the agreement to implement the new standard with an anticipated effective date of 2011. 2010 will be spent doing a full economic analysis and designing a working system.
The Low Carbon Fuel Standard:
- will be a market-based system, with tradeable credits
- will be based on the carbon intensity of the fuel
- will be based on full lifecycle impact
- will be performance-based, not prescriptive
These elements are hallmarks of some of the best, most effective regulation.
- Market-based regulatory system lets markets do what they do best (create and deploy innovative products and services) while compensating for what they do not do (set targets for, incorporate and price externalities).
- Basing the system on carbon intensity focuses the regulation and the measurement on the real goal rather than a proxy that happens to be politically or technically easier
- Life-cycle costing ensures that solutions are truly cost-effective over the long term.
- Performance-based regulation is technologically neutral, not picking winners and losers, but encouraging multiple solutions. In so doing, it promotes economic growth by creating a fertile environment for new and growing busineses.
A Low Carbon Fuel Standard has been enacted in California. The Northeast effort aims to take advantage of that work while addressing some significant issues unique to this region:
- Around 50% of the petroleum-based fuel consumed in the Northeast is used in home heating, far more than anywhere else. While the LCFS will not cover heating oil, it must consider potential collateral consequences.
- Almost none of the liquid fuels consumed in this region are produced locally, presenting challenges (and opportunities) in determining the point of regulation
More information on the Low Carbon Fuel Standard is available from the Northeast States for Coordinated Air Use Management (NESCAUM) web site.