Under the TCI program, fuel suppliers would be required to hold allowances to cover their reported emissions.
By Jean-Philippe Brisson, Joshua T. Bledsoe, and Benjamin W. Einhouse
The Transportation & Climate Initiative (TCI), a regional collaboration of Northeast and Mid-Atlantic states and the District of Columbia, has advanced its program to reduce greenhouse gas (GHG) emissions from the combustion of transportation fuels. On October 1, 2019, TCI published a Framework for a Draft Regional Policy Proposal (the Policy Proposal).
This blog post reviews the presentation of the TCI program’s key design elements and summarizes key stakeholder comments on the Policy Proposal.
The goal of the TCI’s emerging program is to develop and implement a regional policy that reduces GHG emissions and pollutants attributable to transportation systems. According to the Policy Proposal, TCI is also committed to environmental justice, non-discrimination, and public participation: “TCI jurisdictions have committed to working with people and communities to develop and implement a regional policy that addresses the urgent need to reduce greenhouse gas (GHG) emissions and other harmful pollutants generated by the transportation system, while seeking to improve equity, mobility and community engagement.” The Policy Proposal includes examples of programs under consideration to achieve GHG emission reductions with these environmental justice concerns in mind, including programs that offer low-carbon and clean mobility options in underserved communities; encourage individual jurisdictions to conduct independent outreach that is tailored to meet the needs of their communities; and provide transparency and information to the public by tracking and reporting on changes in transportation-related emissions over time. (See TCI Proposes to Reduce Carbon Emissions From Transportation in the Northeast.)
The Policy Proposal does not mention the potential trading of allowances between regulated entities. A key question to monitor is whether the TCI program aims to create an allowance market that is compatible with the Regional Greenhouse Gas Initiative (RGGI).
The Policy Proposal confirms that the TCI program would include a cap on carbon dioxide emissions from the “fossil component” of motor gasoline and on-road diesel fuel. The Policy Proposal specifically notes the need to separately report the fossil and biogenic components of blended fuels, leaving open for future determination whether biogenic emissions will trigger compliance obligations. At this stage, affected fuels would include those destined for final sale or consumption in a TCI jurisdiction, fuels removed from a storage facility in a TCI jurisdiction, and fuel delivered to a TCI jurisdiction if first stored in another jurisdiction. Furthermore, TCI jurisdictions are likely to include de minimis exclusions for individual consumers.
The Policy Proposal indicates that state fuel suppliers would be the primary regulated entities under the TCI program. As regulated entities, fuel suppliers would be required to surrender allowances to cover their reported emissions. The fuel suppliers’ obligations would be based on GHG emissions at fuel combustion, and the calculation of such would rely in part on standard emission factors developed by the Environmental Protection Agency and the California Air Resources Board. The Policy Proposal notes that the “Prime Supplier” definition of the Energy Information Administration (EIA) — which refers to large “upstream” suppliers — could be used as applicability criteria, but notes that additional specificity will likely be needed. Jurisdictions have the option to draw on existing state and federal regulatory language to ensure clarity and enforceability when defining regulated entities.
An electronic system would be used for all reporting under the TCI program, building on the lessons learned in California’s fuel programs and the EIA’s Prime Supplier reporting program. Jurisdictions would use third-party verification, agency verification, or self-certification to ensure the accuracy of the reported data. Existing platforms, such as the RGGI CO2 Allowance Tracking System, could be used for this allowance tracking system. The Policy Proposal indicates that owners and/or operators of fuel supply infrastructure (e.g., terminals or pipelines) could have reporting or recordkeeping obligations in addition to fuel suppliers.
Flexibility and Cost Containment
Based on examples such as RGGI and the Western Climate Initiative (WCI), the Policy Proposal includes features to increase flexibility and cost containment, such as allowance banking and multi-year compliance periods. The Policy Proposal indicates that auctions would be the primary method of distributing the TCI program’s allowances with a small number of allowances set aside to achieve other policy priorities. The allowance cap would be set at a specific level using baseline emissions from the previous three years and projected emissions. Each individual jurisdiction’s allowance budget would be based on a percentage of the total regional emissions cap. The Policy Proposal contemplates a regional organization much like the WCI that would be used for market monitoring functions, auction administration, and allowance tracking.
Allowance Auction Proceeds
Each TCI jurisdiction would have the flexibility to invest its respective auction proceeds to address state-specific policy goals. TCI jurisdictions could also work together to identify shared goals and invest their proceeds accordingly. The Policy Proposal lists complementary policies that TCI jurisdictions may want to pursue in coordination with each other, such as collaborative infrastructure planning, improvements to land-use planning, and the development of green banks.
Comments Submitted on Policy Proposal
TCI has been soliciting and posting public comments on its program since April 2019. Commentators affiliated with the oil and gas industry and environmental non-governmental organizations (NGOs) have provided extensive comments on the Policy Proposal. Some members of the oil and gas industry have expressed concern over reduced state revenue and local tax collections, higher prices for gasoline and diesel consumers, and emissions leakage due to consumers seeking out cheaper fuels in neighboring states. Further, some members of the oil and gas industry have commented that petroleum suppliers may choose to avoid TCI regulations, diverting their products to other areas of the country where regulatory compliance is less costly. Representatives from the biofuels industry have urged TCI to exclude from its program all biomass-based diesels from the potential pricing mechanism. In addition, representatives from the natural gas industry have stressed the importance of renewable natural gas fuel blends in reducing GHG emissions.
Some environmental NGOs have been supportive of the TCI program. These groups have noted their concern about the continued existence of outdated and high-emission transportation systems in many states in the Northeast, and welcome a program that has the potential to increase the efficiency of such systems. Some commenters mentioned that these systems not only contribute to increased emissions, but also disproportionately affect the lives of those in rural communities, making it harder for those people to commute to their jobs. These comments may have encouraged TCI to take into consideration minority groups and the transportation needs of disabled persons when making decisions about the equity of the program. Other commenters are concerned that the cost of the TCI program could be passed on to consumers and have encouraged TCI to consider how the costs of the program would be distributed. Commenters have also encouraged TCI to include in its program further infrastructure enhancements to support alternative forms of transportation, such as bicycle lanes, while others have encouraged the inclusion of additional fuels, such as aviation fuel.
A draft memorandum of understanding (MOU) on the TCI program is expected in December 2019, while a final MOU is expected in the spring of 2020. Thereafter, participating jurisdictions will develop a “model rule” and take any legislative and/or regulatory actions that may be necessary to adopt that model rule at a state level. The TCI anticipates that such rulemaking will occur in 2021, with implementation of the TCI program in 2022.
The authors would like to thank Brittany Davis for her contribution to this blog post.
 Framework for a Draft Regional Policy Proposal, Transportation and Climate Initiative Oct. 1, 2019 at para. 3.
 In most cap-and-trade schemes, emissions from biogenic fuels must be reported but do not trigger compliance obligations.
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