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The Transportation and Climate Initiative (TCI): Everything You Need to Know, Part IV: The Challenges to TCI Implementation

In Part III of our series on the Transportation and Climate Initiative, we took a deep dive into one TCI jurisdiction, Massachusetts, to see how the plan might look once implemented. However, the broad implementation of this regional initiative is anything but certain. Despite the steps that some jurisdictions have taken in progressing towards legislation and executive action to implement the plan, many states are facing legitimate challenges that may prevent this regional program from actually going into effect. 

One challenge that all jurisdictions are facing is the response of the public to the potential increase in gas prices that would result from TCI implementation. While models presented by TCI officials originally reported the proposed increase in gas prices to be between 5 and 17 cents per gallon, a new study has increased that estimate to 26 cents per gallon, which would result in a loss of $738 per year for the average family. Several groups, including the National Federation of Independent Businesses and MassFiscal Alliance, have called the proposed increase in prices a gas tax, alleging that prices for goods and services would also increase due to increased costs to businesses that would be passed on to consumers. Others have decried the increase in gas prices as a punishment for those who need to drive frequently, including Uber and Lyft drivers, the working poor, and residents of rural areas. 

Due to these complaints among others, several governors of TCI member jurisdictions have balked at the prospect of introducing the program in their states. New Hampshire Governor Chris Sununu issued a statement on December 17, 2019 removing the state from the initiative. Calling the program a “financial boondoggle,” Governor Sununu based his refusal to participate in the regional agreement on the alleged cost it would introduce for New Hampshire residents while offering little environmental benefit and disadvantaging rural residents. 

While New Hampshire is the only state to have officially pulled out of the agreement thus far, top officials in other jurisdictions have also expressed hesitancy, including Vermont Governor Phil Scott and Connecticut Governor Ned Lamont, both of whom cited the increased gas prices and penalization of rural inhabitants as top concerns. Organizations and officials in Maine and Rhode Island have also been publicly advocating against TCI implementation. 

It is important to note that, despite the concern over price increases demonstrated by several political leaders and other groups, the final design of the TCI program will almost certainly include price management mechanisms that would mitigate gas price increases. Several such mechanisms were built into the similarly patterned Regional Greenhouse Gas Initiative (RGGI), a program that has been highly successful in reducing CO2 emissions from the power sector while keeping costs relatively low. These tools would, for example, allow for adjustments in the compliance obligations of the wholesalers, giving them multiple years within which to purchase the allowances they need and allowing the wholesalers to buy allowances when they are cheap and hold them to be used in later compliance periods; or allow for lifts of the cap, potentially by increasing the amount of allowances available for purchase upon hitting certain price trigger points. Such price management mechanisms are readily available for use in TCI’s final design. 

The lack of regional support for the initiative, however, signals trouble for a project built upon collaboration between states, creating yet another challenge for implementation. Without every state in the region participating, the jurisdictions that do implement the plan would face competitive disadvantages due to increased costs in some states as opposed to others. If Massachusetts were to implement TCI in a format that increases gas prices, for example, towns sharing a border with New Hampshire would suffer, having to compete with lower-priced alternatives across the state line. With each state that expresses reluctance to implement TCI, the potential for further challenges arising from concerns of competitive disadvantage increases. 

In spite of these challenges, a number of state leaders, top officials, environmental groups, and companies have expressed their enduring support for the proposal, noting that its implementation would lead to large-scale reductions of carbon emissions while generating significant revenue to be reinvested in sustainable transportation and infrastructure projects. As strong as the voices in opposition to the initiative may be, its proponents seem to be equally as determined to see its passage. Which vision will be ultimately realized is, as of yet, unclear.

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Sahir Surmeli

Member / Co-chair, Energy & Sustainability Practice

Sahir Surmeli is a Mintz business counselor who advises companies, boards, entrepreneurs, investment banks, and venture and private equity investors as they build and grow companies. He handles public offerings, 144A and private financings, acquisitions, joint ventures, and strategic partnerships.

Thomas R. Burton, III

Member / Chair, Energy & Sustainability Practice

Tom Burton has helped to shape the clean energy industry by drawing on his passion for innovation. As a Mintz attorney, Tom counsels investors, entrepreneurs, and Fortune 100 companies. He also guides start-up organizations and accelerators to foster the next generation of energy leaders.