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01.13.2020 Transportation Climate Initiative Seeks to Achieve CO2 Reductions by Increasing Cost of Motor Fuels By: John M. "Jay" Holloway, III

The Transportation Climate Initiative (TCI) recently issued for public comment a draft memorandum of understanding (MOU) detailing measures to reduce Greenhouse Gas emissions from the transportation sector.  TCI is a consortium of 12 Northeast and Mid-Atlantic states – including Virginia – and the District of Columbia.  TCI began in 2010 with the goal of reducing CO2 through an allowance program that will raise gasoline and diesel prices. 

TCI says its effort to reduce CO2 emissions from the transportation sector “builds on the region's strong leadership and commitment to energy efficiency and clean energy issues, and its programs to reduce carbon emissions in the power sector, which have resulted in the region becoming one of the most energy efficient areas in the nation.”

The draft MOU is based on the determination that more than 40% of GHG emissions within TCI states are emitted by the transportation sector.  State and district agencies in TCI jurisdictions are directing the effort. The Georgetown Climate Center is facilitating the work.  TCI has independent funders including the Barr Foundation, Energy Foundation, Hewlett Foundation, John D. and Catherine T. MacArthur Foundation, John Merck Fund, New York Community Trust, Town Creek Foundation, and its core funder, Rockefeller Brothers Fund.

TCI claims to be a “cap and invest” program, whereby transportation fuel suppliers must hold allowances to cover resulting reported emissions.  TCI projects that CO2 will be reduced by 25% by 2032.  Revenue from the sale of allowances is projected to be $7 billion annually.  This revenue will be returned to participating jurisdictions for investment in other measures to reduce transportation emissions.  TCI modeling also projects that the CO2 reductions from 2022 to 2032 could yield monetized annual public benefits of as much as $10 billion.  These purported public health benefits include over 1,000 fewer premature deaths, over 1,300 fewer asthma symptoms and other safety and health benefits.        

The MOU specifies that jurisdictions that sign the MOU will:

  • Implement a regional cap on CO2 emissions from on-road diesel and gasoline;
  • Develop a process to auction CO2 emissions allowances and require fuel suppliers to hold and report off-setting allowances;
  • Provide flexibility and ensure market stability, which may include a three-year compliance period, cost-containment and emissions-containment mechanisms, provisions to allow for the banking of allowances, and alternative compliance mechanisms such as offsets. 

The MOU will create a CO2 fuel allowance auction among participating jurisdictions that is expected to start in 2022.  Very little detail has been provided on the increases in fuel costs that will result from the program.

Shortly after the MOU was released, a coalition of 18 organizations along the East coast, including state chapters of the National Federation of Independent Businesses, Americans for Tax Reform and the Institute for Energy Research, released an open letter opposing the plan and labeling it a regressive “sin tax” on motor fuels.  The letter contends that the TCI CO2 allowance auction is nothing more than a motor fuels tax that will force citizens and businesses to use motor vehicles less or pay more for fuel.  Driving is essential, particularly for lower income citizens who cannot afford increases in gasoline prices.  The letter also contends that consumers will experience increased costs of municipal services, such as garbage collection, snow plowing and school transportation, because of the increased cost of fuel.

After the release of the MOU, New Hampshire Governor Chris Sununu announced that his state is withdrawing from TCI because of additional consumer costs.  Businesses and consumers in other TCI states have until February 28, 2020 to file comments.  TCI state Governors and legislatures should be aware of the impacts that this program will have on gasoline and diesel prices.  While utility and other industry CO2 programs are prominent, the TCI initiative has a low profile.  The business community should take the lead in making sure the costs from this hidden tax are well-known.

TCI’s anticipated schedule going forward is:

  • Spring 2020 – The final MOU will be released, and TCI jurisdictions must decide whether to participate in the program;
  • Spring-Fall 2020 – Participating jurisdictions develop a model rule and take any needed legislative steps;
  • 2021 – Participating jurisdictions conduct a rulemaking process to adopt the model rule;
  • 2022 – The first compliance period of the program begins.

 

TCI draft Memorandum of Understanding (Dec. 17, 2019).

Open Letter Opposing MOU (Dec. 2019).