Allocation of greenhouse gas allowances in the United States – A northeastern example

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The Regional Greenhouse Gas Initiative (RGGI) initiated the first regional greenhouse gas emissions trading system in the United States. This cap-and-trade program will begin on 1 January 2009 and will include sources from the electricity generating sector. To date, 10 northeastern states have committed themselves to participating, and each state is currently developing laws and regulations to implement RGGI. The allocation of allowances, which is a controversially debated issue under the European Emission Trading Scheme, is once more proving to be one of the major challenges when introducing an emissions trading scheme. Six RGGI states have stated their intention to auction 100% of the allowances, and Massachusetts is the first state to develop draft regulations specific to an auction. As RGGI continues to evolve, the international community should pay close attention to the decisions that these northeastern states make individually or jointly, as they may not only influence the regional, but also a possible future federal trading system. Furthermore, as the international regime continues to evolve, mandatory cap-and-trade programs in the U.S. – either regionally or nationally – could potentially be an important part of a future international carbon market.

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