One of the “flexibility” measures built into the Environmental Protection Agency’s (EPA’s) final Clean Power Plan (CPP) is the option for states to join multi-state emissions trading programs for carbon dioxide. Panelists in a session focused on this issue at the National Association of Regulatory Utility Commissioners (NARUC) annual meeting in Austin largely agreed on the benefits of such an option, though the reality of how states may join such programs is full of uncertainties.

The panel, moderated by Colorado regulator Hon. Joshua Epel, consisted of Doug Scott, Vice President, Strategic Initiatives, Great Plains Institute; Kelly Speakes-Backman, Senior Vice President, Policy & Research, Alliance to Save Energy; Robert A. Wyman, Jr., Latham & Watkins; and Joseph Goffman, Associate Assistant Administrator & Senior Counsel, Office of Air and Radiation, EPA.

The bottom line for the non-EPA panelists was that a mass-based approach to an emissions trading program has more benefits than a rate-based program (though the Great Plains Institute does not take a position on one or the other). Rate-based programs, Scott noted, tend to be “a little more complicated” and, hence, more expensive. His group has been a proponent of the multi-state approach, especially as a compliance approach for generators operating in multiple states. Wyman noted later that rate-based programs are less efficient and more subject to litigation.

Though having the choice to develop one or the other sort of trading program does provide flexibility, if only a few states are using one approach, Scott said, they’ll have fewer options.

Speakes-Backman, former commissioner of the Maryland Public Service Commission and former chair of the Regional Greenhouse Gas Initiative (RGGI) Board of Directors, made the important distinction that goal-setting is separate from compliance, and that energy efficiency, though not a “building block” in the final CPP, can still be a part of a state compliance plan. Efficiency, she said, is still the fastest, most effective, least-cost compliance approach.

As for a trading program, RGGI is a potential model for other states going forward. That doesn’t mean that setting up a program is simple. One issue is whether allowances will be auctioned, as in RGGI, or allocated based on historical emissions. Another is whether to develop a formal structure, as RGGI has, or a less formalized agreement between state departments of environmental protection and regulators. Wyman noted that “the clearer and more formal the signals,” the better the capital market can respond. That argues, he suggested, for joining a trading program rather than taking the “trading-ready” approach offered under the CPP.

Importantly, the decisions of states around you, Speakes-Backman said, will affect your state—whether you go it alone or join together with trading plans.

Though Wyman agreed that mass-based programs are simpler by design, some states may start with a rate-based program, he predicted, as those may appear to be more in a state’s self-interest. Comments from multiple panelists noted that a state could shift from one approach to another at a later date. It was also clear that they expect some states to sit out the trading approach at the beginning but to join some sort of program later.

The EPA’s Goffman noted that the issue of rate- versus mass-based approach won’t be the first question asked and answered. Making the system work will take priority.

All agreed with Wyman that the more states trade with each other, the lower the program costs could be.

Gail Reitenbach, PhD, editor (@GailReit, @POWERmagazine)