Cap and Invest
|Criteria Emissions Reductions||GHG Reductions||
|Grid Stability||Advanced Technology Development|
for States & Cities
|Timeframe for Implementation||Legal Authority|
A cap-and-invest, or cap-and-trade program, sets an overall declining cap on emissions from a group of sources. The state or jurisdiction running the program then issues an “allowance” for every ton allowed under the cap, and compliance entities—those emissions sources that are included under the cap—must purchase an allowance to cover every ton of their emissions. If it is more cost-effective to reduce emissions than purchase an allowance, a compliance entity has an incentive to do so, leading to an incentive across the market to find the lowest cost emissions reductions opportunities. Market-based mechanisms have a long track record in the United States—they have been successfully employed in cost-effectively reducing acid rain-causing emissions from power plants, and there are currently two successful cap-and-trade programs in North America that regulate GHG emissions—the Regional Greenhouse Gas Initiative (RGGI) and the California program. As discussed in more detail in the case study, the California program includes emissions from the transportation sector.
Cap-and-invest programs are specifically designed to direct the revenues associated with the purchase of allowances—revenues that accrues to the implementing jurisdiction—toward complementary advanced transportation programs, policies, and technologies that can further reduce emissions. For example, revenues could be used to fund investments in transit systems, credit programs for cleaner vehicles, or EV charging infrastructure. Revenues from these programs could also be used to offset a portion of decreases in revenues from gas taxes, which may fall if fewer vehicles are gas-powered.
Designing and implementing cap-and-invest programs would require many policy and administrative choices that are discussed in detail in other papers, including where to impose the price, which sources to cover, whether to include policy mechanisms to constrain potential price impacts, how to distribute allowances, whether to allow trading of allowances with other programs, and how to direct the revenue if any allowances are auctioned. Additional resources on these design considerations include work done by the Georgetown Climate Center on behalf of the Transportation and Climate Initiative (TCI), a coalition of 11 Northeast and Mid-Atlantic states and the District of Columbia. This initiative has explored key technical aspects of a hypothetical regional cap-and-invest policy, including which fuels might be covered under a policy, and which entities in the transportation fuel supply chain might be responsible for reducing emissions.
For references and sources for this policy background and these case studies, please see the full report, Toolkit for Advanced Transportation Policies http://www.mjbradley.com/sites/default/files/mjba_transportation_toolkit.pdf