On January 4th, Deval Patrick will become governor of Massachusetts. Soon thereafter, you will likely hear a lot of talk about “Reggie” and might wonder who this Reggie person is and what all the fuss is about.

“Reggie” is not a person — it is the Regional Greenhouse Gas Initiative (RGGI).

The easiest way to think of RGGI is to imagine the Kyoto Protocol, but on a much smaller scale. While the Kyoto Protocol sets emission reductions targets for the participating nations, RGGI basically works at the state-level.

The states that have signed on to RGGI have committed to reducing their carbon
dioxide emissions by 10 percent by 2019. Specifically, the states will target the emissions coming from power plants, one of the two largest sources of emissions in the Northeast, along with transportation.

Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont have all signed on to the agreement. Massachusetts participated heavily in the definition of RGGI but, at the last minute, Governor Romney pulled out of the discussions and refused to sign onto RGGI.

During the recent elections, then candidate Deval Patrick urged Governor Romney to reverse his decision and sign on to RGGI. Since the election, Patrick has committed to joining RGGI once he takes office.

A Cap-and-Trade Program Analogy

One of the most fundamental aspects of RGGI is that it creates a “cap-and-trade” program to control the carbon dioxide emmissions from the power plants in the region.

One can get into all sorts of economic theory about the value of a cap-and-trade program, but to help explain this, let me try to create an analogy.

Let’s imagine for a moment that you are a parent and have three children — John, Jane, and Jose — and you want to encourage your children to keep their rooms clean.

Rather than trying to eliminate the mess completely — a task that is too daunting to consider — you set a limit on the total mess that can exist.

For example, you say that between all three of your children, there can be no more than fifteen things that aren’t put away at any time.

The key here is that you actually are not saying that each child can only have five things out. It could be that one child has seven things out, another five, and the other three. All you care about is the total limit.

You then tell the children that you will give them a set of index cards that represent thier “right to create a mess”. Each index card allows one item to be out of place.

To enforce the system you make a single rule: at any point, you have the right to audit how many index cards each child has and compare that to the number of things that child has that aren’t put away. If the child has enough index cards to cover their mess, they are fine. If the child doesn’t have enough index cards to cover their mess, they get in trouble.

Then, what you do is you give each child five index cards and let the fun begin.

For example, if John is a naturally neater child while Jane and Jose are messier, John won’t need all of his index cards. John now has an asset that he can use to bargain with Jane and Jose.

Better yet because there is more demand for the cards than a supply, John can negotiate with Jane and Jose to see who will give him a better offer for his cards.

Jane offers to give him half her Halloween candy stash for two of his cards while Jose tells John that he’ll mow the lawn — one of John’s least favorite chores — for a month in exchange for two cards.

John sits back and lets Jane and Jose out bid one another until John finally decides to take up Jose on his offer.

John winds up using his remaining three cards to cover his mess.

Jose, now with seven cards, is able to cover his mess.

But, poor little Jane only has five cards and way too much mess. Under the original rules you set forth, Jane only has one choice — reduce her mess.

However, as a benevolent parent, you decide that Jane can “earn” additional index cards by doing additional chores that help reduce the overall clutter of the house. Specifically, you institute a policy that for each load of laundry that a child does, they earn another index card.

Jane is finally able to come into compliance by reducing her mess some and “buying” some additional index cards by doing laundry.

The end result of this system is you have also created incentives for people to create less mess.

Little Johnny loves the new program since he didn’t have to change his behavior at all, but is now able to rake in the favors from his siblings. Better yet, Johnny recognizes that if he is even cleaner than he was before, he can get even more rewards. More candy for Johnny!

In constrast, the worst offenders have very few choices. They can:

• Reduce their overall mess
• Buy index cards from their siblings — but this is limited by how much they can “pay” and how many index cards are available.
• Earn additional index cards by reducing the clutter through other mechanisms.

Any of these three outcomes is a fine result for you!

More importantly you now have a way to “regulate” the total amount of mess in the house; the fewer index cards you give out, the less mess that will be allowed.

For example, once the program has been in place for a couple of months, you decide to reduce the total number of index cards to 12. This forces all of the kids to find new ways to fit under this cap.

RGGI and Cap-And-Trade

Obviously, the real world cap-and-trade program proposed by RGGI is far more sophisticated than the index card system described above, but hopefully it is pretty easy to understand how the general principals could be used to reduce carbon dioxide emmisions.

• The maximum of fifteen out-of-place items is the “cap” in the analogy. Under RGGI, the cap is on tons of carbon dioxide emmisions.
• The index cards above represent the “permits” in a cap-and-trade system. Under RGGI the pemits are given out (or sold) by the government.
• The ability for the children to “earn” additional permits by doing laundry corresponds to the concept of “offsets”. Under RGGI, power plants might be able to earn offsets by doing things like planting trees, encouraging conservation, or engaging in other activites that wind up reducing greenhouse gases.

Under the proposed plan, RGGI will set a cap of total carbon dioxide emmissions for all power plants and will leave that cap fixed from 2009 to 2014.

Then, starting in 2014, the cap will be reduced slightly each year until 2018 when the cap will be 10% lower than its starting point.

While it might seem simple for the power plants to live under a fixed cap, it is important to understand that the amount of energy produced will not be fixed. So, as people are using more and more energy, the power plants will have to find cleaner and cleaner ways to produce this energy just to stay under the original cap.

Why is this important?

RGGI is the first cap-and-trade system in the U.S. to be used to regulate and reduce carbon dioxide emissions.

More importanly, there are a lot of other parties watching to see how implementation goes to see if they want to join. In addition to Massachusetts, the following other entities have expressed interest in joining RGGI’s cap-and-trade program:

• Maryland
• The District of Columbia
• Pennsylvania
• Rhode Island
• The Eastern Canadian Provinces

If we can get success going at the local level, this could very quickly grow into a much larger program.

For More Information

Marc Breslow of the Massachusetts Climate Action Network (MCAN) has written a very nice primer on RGGI.