Northeast Cap-and-Trade Program Sums Up Costs

Initiative could raise gas prices by up to 17 CPG while boosting economic and public health indicators for states
Photograph: Shutterstock

CHICAGO — A cap-and-trade initiative under development in more than a dozen Northeastern states has just released an estimate of the program's effect on fuel prices and revenues.

The Transportation and Climate Initiative (TCI), founded in 2010, aims to cap carbon dioxide emissions from the combustion of finished motor gasoline and on-road diesel in the Northeast. It currently has 13 participating jurisdictions, including Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont and Virginia.

The regulated entity under the program would be fuel suppliers, who would be required to hold allowances to cover reported emissions. They would include owners of fuel at terminals in a TCI jurisdiction and owners of fuel delivered into the jurisdiction for final sale or consumption in the state from a facility in another jurisdiction. Fuel suppliers would be required to report emissions and supporting information to TCI jurisdictions on a monthly or quarterly basis. The earliest the program would be enacted is 2022.

In October, the TCI released its proposed program framework. And in December, it shared an analysis of the estimated costs and benefits. Should fuel suppliers pass the costs of compliance to consumers, the TCI estimates it could increase retail gasoline prices anywhere from 5 to 17 cents per gallon in 2022, depending on the targeted decline in the emissions cap. The steepest price increase would happen under a 25% cap-reduction scenario.

On the benefits side, the analysis estimates that all cap-reduction scenarios would result in economic and job growth, reduced asthma symptoms and fewer deaths and premature deaths. It estimates the public health benefits ranging from $3 billion to $10 billion, depending on the cap-reduction scenario.  

Pushback in Massachusetts

Leaders in the participating TCI states have been working to get their respective legislators and residents on board with the program.

In Massachusetts, Gov. Charlie Baker (R) has highlighted the fact that fees are levied at the wholesale level, rather than at retail like a gasoline tax, and minimized the likelihood that fuel suppliers would pass the costs on to retailers, who could pass them on to consumers, Commonwealth Magazine reported.

Stephanie Pollack, Massachusetts’ secretary of transportation, said TCI would not aim to raise the price of gasoline quickly to dissuade consumption; rather, it would increase the cost of allowances slowly and invest the money in policies and programs to influence driving behavior. Baker would like to divert half of the money raised through TCI to Massachusetts’ transportation bond bill to support public transportation.

Opponents, however, have charged that TCI is essentially a gas tax, and they have introduced a bill that would require Baker to get approval from the state legislature before enacting the program, The Boston Herald reported.

“The bottom line is we’re filing something that will at least require the legislature to approve and maybe direct it if it’s passed,” Rep. David DeCoste (R) told the Herald. “It’s essentially a tax, and you could have potentially never-ending tax increases as a result of this and nobody would ever vote on it.”

Baker could, however, enact the TCI through an executive order.

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