Regional cap and trade is working - and maligned

Posted: October 04, 2010

New Jersey helped mark a milestone in climate-change policy in 2008 with the launch of a 10-state program to control carbon dioxide emissions from power producers.

The Regional Greenhouse Gas Initiative set up a form of "cap and trade" that requires power producers to pay for every ton of greenhouse gas emitted by buying allowances at quarterly auctions. Two years in, experts say, RGGI is working. Sort of.

The complex auction is functioning well - a feat in itself - and has provided $729 million in new revenue to the states, including all of New England, New York, New Jersey, Delaware, and Maryland. (Pennsylvania dabbled in early discussions about the program, but never joined.) Most of the money is earmarked for energy efficiency, renewable energy, and ratepayer assistance.

But RGGI's designers hoped it would become a model for a national cap-and-trade program. Efforts to create one stalled this year in the Senate.

Conservative Republicans across the country have made cap and trade a campaign issue, saying it threatens jobs by increasing energy prices.

"The future of cap and trade as a policy is very much in doubt," said Anthony Leiserowitz, director of the Yale Project on Climate Change, who studies public opinion.

Cap and trade as a method to control carbon emissions was introduced under the Clinton administration as a market-driven alternative to strict regulation, one that could draw broad support. The first President Bush had ushered in a similar program to curtail acid rain, which proved inexpensive and effective.

Leiserowitz said proponents had not gotten the message out about what the carbon program does.

His office conducted a national poll in January that found 75 percent of the 1,001 people questioned had never heard of cap and trade or knew nothing about it.

About half of the remainder responded negatively: "Cap-and-tax, energy tax, light-switch tax, boondoggle, political corruption, giving money to Wall Street - all the lines of attack that the opposition were using," Leiserowitz said.

The conservative public policy group Americans for Prosperity was host to a protest outside the New York offices of RGGI Inc., the nonprofit that supports the program, during the quarterly auction held last month. And Republicans in some RGGI states have called for a repeal.

Sen. Steven Oroho (R., Sussex) has sponsored a bill to that effect in New Jersey. He said he was worried about electricity prices.

"RGGI makes us less competitive," he said.

As of June, New Jersey's average retail electric price was the fourth-highest in the country, at 15.65 cents per kilowatt, behind Hawaii, Connecticut, and New York, according to the U.S. Energy Information Administration. But New Jersey held an unenviable place near the top of that leaderboard well before RGGI took effect.

To date, the auction has had a tiny effect on electric bills. Early projections were that RGGI would add $3 to the average household bill in 2015. The actual cost has been less than that, said Mark Scorsolini, who manages climate policy for PSE&G.

Electricity demand is low. Plus, the cost of natural gas, which creates less carbon emissions than coal, has dropped, so more producers are using it to generate power.

The total carbon dioxide emitted in the 10-state region fell about 17 percent between 2005 and 2008, according to estimates from the state Department of Environmental Protection, and experts say the trend has continued.

Power generators must buy an allowance for every ton of carbon they emit. There's a set number of allowances available each year, but emissions are under that target this year. So, allowances are cheap. They hit the auction's floor at $1.86 last month.

Each state receives an allotment of allowances and sells them at auction. Proceeds to New Jersey are projected to be about $159 million over a three-year period ending next year.

Under state statute, the money is supposed to be shared among three agencies to fund programs that promote solar installations and other forms of renewable energy, assist low- and moderate-income ratepayers, conserve land, and help municipalities cut their use of fossil fuels.

The state budget this year redirected $65 million - about 40 percent of the total - to the general fund.

The move "dismayed" advocates like Amy Hansen of the New Jersey Conservation Foundation. She was particularly concerned about a grant program under the Department of Environmental Protection to protect forest and tidal marshes, which help to capture carbon dioxide, that was suspended before it got going.

Hansen is worried, too, about calls to repeal RGGI.

"They're talking about the expense of rising energy costs," she said, "but the expense of dealing with climate change is much bigger."

New Jersey was not the only state facing a deficit that tapped RGGI money to help.

New York redirected $90 million, about 20 percent of its projected three-year proceeds. About 6 percent, or $3.1 million, was redirected in New Hampshire, where the state Republican Party added repealing RGGI to its platform last month.

Two more regional carbon auctions are in the works: one in the Midwest and one involving seven Western states and four Canadian provinces.

The regional approach "is not sufficient or even satisfying, but it is really important," said Dallas Burtraw, senior fellow at Resources for the Future and an early technical adviser in the development of RGGI.

Frank Felder, director of Rutgers Center for Energy, Economic, and Environmental Policy, said RGGI was designed as a catalyst to influence national and international policy. While it is running well, on its own it does not mean much.

"Unless we cap emissions worldwide," he said, "we're just proving a concept."


Contact staff writer Chelsea Conaboy at 856-779-3893 or cconaboy@phillynews.com.

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