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US regional transportation carbon market could spur $10B/year in health benefits

A regional cap-and-trade style market for on-road transportation sector emissions across a number of Northeastern and mid-Atlantic U.S. states could yield as much as $10 billion in annual health benefits by 2032 but would only modestly increase regional GDP and job levels, the Transportation and Climate Initiative reported in preliminary modeling results released Dec. 17.

The Transportation and Climate Initiative, or TCI, published the results on the same day as it posted for public comment a draft memorandum of understanding that would serve as the underpinning for states to work together on a regional cap-and-trade program. Multiple entities, including states and transportation consultancy firm Cambridge Systematics, undertook the preliminary modeling. TCI indicated that more detailed modeling will be done in the spring of 2020 by the Center for Climate, Health, and the Global Environment at the Harvard T.H. Chan School of Public Health. The MOU is also expected to be finalized in the spring of 2020.

States that have publicly expressed interest in creating the cap-and-trade program are Connecticut, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Vermont and Virginia. New Hampshire Gov. Chris Sununu in a Dec. 17 tweet said his state will not participate in the program and suggested that the program "if enacted, would institute a new gas tax by up to 17 cents per gallon while only achieving minimal results."

Some of those states are participants in the Regional Greenhouse Gas Initiative, which is a cap-and-trade program for power sector carbon emissions.

Many of those states have also set a goal of reducing their economy-wide emissions by 80% by 2050 from 1990 levels. Given that the transportation sector produces the most greenhouse gas emissions among all U.S. industry sectors, officials say the Northeastern and mid-Atlantic states cannot achieve their climate change-related goals without tackling those emissions.

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Under a draft market framework TCI published in October, the program would start in 2022 and would cap carbon dioxide emissions from the combustion of fossil fuels in gasoline and on-road diesel fuel. The cap would ratchet down over time to a yet-to-be-decided target level in 2032. The program would allow jurisdictional entities to bank allowances and comply over a period of years to add more flexibility and reduce the initial cost impact. For their part, states could reinvest revenues from the related allowance auctions in clean transportation programs.

Modeling of the potential benefits of the program found that if states were to cut transportation emissions by 25% over the first 10 years of the program, using assumed 2022 levels, the resulting health benefits to the public would be about 1,000 fewer premature deaths and about 1,360 fewer asthma symptoms annually regionwide. The total monetized public health benefits would be $10 billion under a 25% cap reduction, $6 billion under a 22% cap reduction and $3 billion under a 20% cap reduction.

In addition, the emissions allowance auctions could generate up to nearly $7 billion annually that could then be reinvested in clean-energy programs.

The modeling also found that, under a business-as-usual scenario in which a regional carbon market for transportation emissions did not occur, transportation emissions would likely decline by about 19% by 2032 from levels expected in 2022. "This decline is largely the result of improving vehicle efficiency and greenhouse gas emission standards and a shift away from internal combustion engines and toward zero-emission vehicles," according to a summary of the modeling.

But a cap-and-trade market for transportation sector emissions would yield modest results on the economic front, according to the summary. A 25% emissions cap reduction as of 2032 would likely only increase GDP growth by 0.05%, jobs by 0.02%, and disposable personal income levels by 0.04% from business-as-usual projections, the summary said.

Regarding the new draft MOU, TCI will be accepting comments through Feb. 28, 2020. The initiative in particular requested comments on what factors the states should consider when setting the starting level and trajectory for a regional cap on carbon emissions from transportation fuels. TCI also wants input on how the compliance period should be structured "to provide needed flexibility, while ensuring environmental integrity," and seeks recommendations regarding what factors participating states should consider when "designing stability mechanisms for managing uncertainties regarding future emissions and allowance prices," the draft MOU said.