The growing role for the US in the Carbon Market

Implications:

1. The EU Emissions Trading Scheme (ETS) and the Kyoto Protocol’s Clean Development Mechanism (CDM) have created major markets for trading carbon credits and encouraged internal abatement programs as well as renewable energy projects.

2. A majority of carbon trading in the EU focuses on carbon remediation through internal abatement methods while a majority in the Kyoto Protocol focuses renewable energy development

3. The US market is on the verge of creating a carbon trading market that could both encourage reductions in carbon production, remediation measures as well as be a major driving force for renewable energy. 

Analysis: The United States is on a dual track in creating a carbon trading market that will have two compelling components.  The passage of greenhouse gas emissions (GHG) limits in California was a major step that has been more than a solo effort with the establishment of the Regional Greenhouse Gas Initiative (RGGI) covering nine states in the Northeast with others expected to join in 2007.

Many large companies have formed the US Climate Action Partnership including (USCAP) together with leading environmental organizations to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.  These companies include Alcoa, BP America, DuPont, FPL Group, General Electric and PG&E and the environmental groups include the National Resources Defense Council, the Pew Center on Global Climate Change and the World Resouces Institute.

At the same time, the market for Renewable Energy Credits (RECs) are also know as Green tags or Tradable Renewable Certificates (TRCs) is rapidly evolving with several states set to use them to support renewable energy, notably solar.  They are a market mechanism that represents the environmental benefits associated with generating electricity from renewable energy sources.  States such as California and New Jersey are initiating performance based incentives using RECs, which will lead to increased installations and a long-lasting boost to renewable energy projects.