May 7, 2015 / 4:36 PM / 2 years ago

Midwest states eye carbon trading to meet EPA targets

(Reuters) - Even as some of them fight Washington's new clean air regulations in court, coal-reliant Midwestern states are asking the Obama administration to provide rules for an emissions trading platform that would help them meet the federal greenhouse gas standards.

Late last month, a coalition of power companies, regulators and green groups known as the Midwestern Power Sector Collaborative (MPSC) asked the Environmental Protection Agency to create ground rules for states that want to trade carbon emissions permits with other states, an option it feels would offer one of the cheapest options to meet the agency's proposed Clean Power Plan.

Meanwhile, state air and energy officials called the Midcontinent States Environmental And Energy Regulators have met regularly over the past few months to weigh joint strategies to comply with the forthcoming regulation.

The Clean Power Plan, the centerpiece of President Barack Obama's broader climate change strategy, would require states to collectively cut carbon emissions 30 per cent by 2030. It is due to be finalized this summer.

In the Midwest, several states oppose the EPA proposal and some have already tried to sue the agency to block it. Yet regulators and utilities feel the need to develop the most cost-effective plan possible should those challenges fail, Nancy Lange, a Minnesota Public Utilities commissioner, told Reuters.

Last month, Kentucky and Wisconsin joined 13 states in a case heard at the DC Circuit court aimed at blocking introduction of the EPA's regulation. Their officials, however, are observers in the MPSC.

"There is a recognition that if the rule goes forward, having a plan of action that has been explored and tested and modeled with your neighboring states is probably a very prudent strategy," Lange said.

"A larger footprint allows for economies of scale that are beneficial for consumers," she said.

Inter-state trading - more commonly known as cap-and-trade - has been effective in reducing emission levels in the U.S. Northeast, where nine states currently participate in a common market called the Regional Greenhouse Gas Initiative (RGGI) to trade carbon permits.

But Midwest utilities and regulators want the EPA to help establish a voluntary trading platform that states can "opt-in" in order to meet state targets rather than forming a formal multi-state market like RGGI where states work toward a common target.

The Great Plains Institute, a think tank which facilitated discussions between coal-based power companies, regulators and green groups in the MPSC, said states want the EPA to establish guidelines and the market infrastructure for emissions trading.

"No one wants to dictate that any state should be forced to trade," said Brad Crabtree, vice president of the institute. But, he added, a carbon market should "be a clear and readily available option for those who want it."

The EPA plan, which is due to be finalized this summer, has drawn fierce Congressional opposition, led by Senate Majority Leader Mitch McConnell of coal state Kentucky and fellow Republicans, but including some Democrats.

McConnell's hostility to the new regulations took aim at inter-state trading last week, warning that multi-state agreements to reduce air pollution require Congressional approval under the federal Clean Air Act.

In addition to RGGI, California has a carbon market and is seeking to partner with Oregon and Washington to help each other comply with the EPA rule.

Opponents have challenged McConnell's argument because the joint trading programs are voluntary rather than forced on states by Washington.

Crabtree said Midwestern states are focused on tuning out the political noise.

"Midwesterners are often seen as pragmatic. When the politics are settled, this practical approach by states will be the most sensible way forward given the hand they are dealt," he said.

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