What’s up with RGGI? Moving the cap down.

Guest post by Ric Werme

I need to get my daughter to whiteout NJ….


Things have been pretty quiet in the northeast’s the Regional Greenhouse Gas Initiative (RGGI). New Jersey has gotten out and remains out, New Hampshire didn’t get out, but most of the money collected will be going back to ratepayers. Between the recession and the collapsing price of natural gas, electric power producers have been producing less electricity and doing it more efficiently. RGGI’s goal of “reduc[ing] power sector CO₂ emissions 10 percent by 2018″ has been met and exceeded. The quarterly auctions of CO₂ allowances have sold only 53-63% of the available allowances for the last five auctions.

Instead of declaring success and shutting down, RGGI is considering lowering the cap in hopes that it will lead to higher prices and still lower production. On December 11, 2012 environmental agency leaders from the nine Northeastern US states in RGGI met to discuss anticipated changes in 2014 to the program’s annual cap on CO₂ emissions from the electric generating sector. Comments on the RGGI web site for the latest round of stakeholder meetings from environmental advocacy organizations call for emissions reductions that will have virtually no environmental consequence and risk serious negative economic consequences to the region.

In the RGGI program, plant owners purchase state-issued allowances to emit a ton of CO₂ in quarterly auctions. States are supposed to use the money raised from the auctions to fund various energy efficiency, conservation and green agenda programs, but three or four states raided the RGGI funds in 2010 to close a budget gap and some funds are used to help residents pay for winter heating costs.

Although touted as a market-based program, for all intents and purposes it is a carbon taxation program. New Hampshire’s incoming governor, Maggie Hassan, called it a tax – and she was one of the sponsers who got New Hampshire into RGGI.

As carbon tax programs go it has been successful. According to their description of the investment of the allowance proceeds, they have returned “$1.3 billion in lifetime energy bill savings to 2.9 million program participants and 7,400 businesses in the region to date”. CO₂ emissions have dropped too. The current regional cap is 165 million short tons of CO₂ and emissions have averaged around 105 million tons since the start of the program. This reduction was due to the extraordinarily low natural gas prices that encouraged using the more efficient natural gas for power generation over coal and oil and also the weak economy in the past four years.

RGGI has also been successful for what did not happen. Because of the low demand for allowances, RGGI auction prices have been at the minimum level for the last ten auctions. As a result, the economic disadvantage of higher costs to generators and rate payers was minimized, there was minimal generation shifting from the RGGI region to generators outside the region (aka “leakage”) which minimizes environmental benefits (emissions are not eliminated merely shifted), and there were no market crises.

Despite these successes the comments from environmental organizations all follow the same theme leading up to the same recommendation. Recent events such as Superstorm Sandy are evidence of the “grim reality of climate pollution”. RGGI has been a success but the program did not cause emissions reductions. Therefore the new emissions cap should “put us on track to lower greenhouse gas emissions by 80% below current levels by 2050, consistent with the consensus of the scientific community”.

RGGI has prepared analyses for four lower emission caps ranging from 106 million metric tons to 91 million tons. The environmental organizations propose a cap that would be lower than any of those modeled. RGGI’s modeling indicates that at least two thirds of the projected CO₂ emission reductions from a cap lower than current emissions are simply transferred out of the region. This is leakage on a grand scale and will surely have negative economic consequences.

More importantly, what is the benefit? Chip Knappenberger’s recent post “A carbon tax is climatically useless” is can be used to address their claims. Chip noted that “No matter the level of domestic action that we take, it will pale in comparison to the rapid expansion of carbon dioxide emissions in other parts of the world.” If you adapt Chip’s methodology to the emission reductions proposed by RGGI you will find that global growth in emissions will subsume RGGI reductions in less than two days. The global warming “savings” for the reduction is 0.00005°C in 2050.

Residents of the RGGI states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont who disagree with a cap that is lower than expected emissions are encouraged to contact RGGI. Although comments were requested by December 6, 2012 it is not too late to make your opinion known. Comments should be submitted by email to info@rggi.org . All submitted written comments will be posted at http://www.rggi.org/design/program_review/stakeholder_comments.

24 thoughts on “What’s up with RGGI? Moving the cap down.

  1. These schemes are simply corrupt. Governments get money from selling something intrinsically worthless (carbon permits) to redistribute to favoured interest groups that support their re-election.

  2. “….RGGI is considering lowering the cap in hopes that it will lead to higher prices ….”

    Has any academic been given a grant to assess the impact on rising energy bills causing fuel poverty deaths?

    In the UK there are 27,000 extra deaths each winter compared to other times of year, according to figures from the Office for National Statistics. The report found most of this was due to cold weather.

    http://www.bbc.co.uk/news/business-15359312

  3. “Instead of declaring success and shutting down, RGGI is considering lowering the cap in hopes that it will lead to higher prices and still lower production.”

    When this was introduced the bureaucrats and politicians would expected to raise a certain amount of money, presumably that has not been realised. Being bureaucrats and politicians they have already spent that money and they have now got to make up the difference.

  4. In the meantime, the people who do the trading, ie bankers, continue to rake in their profits. And you know how everyone loves it when bankers make lots of money off of the rest of us.

  5. the Regional Greenhouse Gas Initiative (RGGI).

    Should be renamed the Regional Initiative for Greenhouse Gas Eviction Dept (RIGGED).

  6. I really appreciate the RGGI updates, Ric. Thank you. I’ve been interested in how the RGGI would play out, but we don’t get local coverage on it in the mid-west and I’m not going to chase all the info down. You keep us up to speed on this little laboratory experiment with your reports.

    Now for some first-hand reporting from you; have you personally noted or detected any direct negative pricing impacts from the RGGI or does the scheme slip the knife through the ribcage rather painlessly? Are you getting any sense that the regional agreements will fall apart?

    Thanks, and please continue the updates. I’m waiting to see if it goes on forever like any other government program or if it will actually get scrapped.

    Reply: The RGGI cost to New Hampshire households has been estimated at $0.065, $0.36, and $0.83 per month, so it’s not onerous. See http://wermenh.com/rggiwatch/finance_notes.html . However, there are some half million households, so the total raised in 2010 was some $5 million, and that’s enough for some visible impacts in the sense bureaucrats giving residents, organizations, and power producers some of the RGGI funds.

    Currently, there’s very little movement in the 9 RGGI states to pull out so I’m expecting the status quo to remain for now. -Ric

  7. mwhite says:
    December 14, 2012 at 1:44 am

    “Instead of declaring success and shutting down, RGGI is considering lowering the cap in hopes that it will lead to higher prices and still lower production.”

    When this was introduced the bureaucrats and politicians would expected to raise a certain amount of money, presumably that has not been realised. Being bureaucrats and politicians they have already spent that money and they have now got to make up the difference.

    I completely agree that this is the problem – but unlike
    Bloke down the pub says:
    December 14, 2012 at 3:15 am

    In the meatime, the people who do the trading, ie bankers, continue to rake in their profits. And you know how everyone loves it when bankers make lots of money off of the rest of us.

    I think that the parasitic bankers and fund managers etc etc are concerned that they are not getting the returns that they expected from running this scam. Therefore, the politicians, bureaucrats and bankers are all in agreement that the bar has to be raised to start screwing the amounts of money they had planned on out of the system. There never was any link to ‘global warming’ this is just a useful method of taking money from the taxpayer while hiding behind ‘saving the world’. In that respect it is just like the money laundering exercise called ‘green energy’ that takes taxpayer money and passes it to politicians supporters and is nothing to do with efficient provision of energy.

  8. · The average rate of return on investments in carbon reduction activities 33%, claimed the Carbon Disclosure Project….. one of the ‘most successful investor engagement projects of recent years…..(according to James Mackintosh@ft.com)

    · 80% of the Global 500 firms now disclose their emissions. The next step to put this data to good use…said AXA Investment. In 2012 emission reduction activities totaled $11bn. Emission cutting by improved energy efficiency is making money. Said head of sustainability at Scottish Widows ‘Climate change is now happening in a significant way and there is a fair bit more in the pipeline because of time lags in the climate system. That is going to affect our portfolio. There is no question that the most important action is for policymakers to establish a carbon price. But in the meantime, no regrets energy efficiency measure are a good thing to encourage’. (FTft weekly review of the fund management industry, 19 Nov.)

    Perhaps of interest? The investment industry needs to be informed!?

    Sonja

  9. The source as not James M..but Mike Scott, no email given.

    From: Sonja A Boehmer-Christiansen
    Sent: 14 December 2012 15:48
    To: ‘Watts Up With That?’
    Cc: ‘ClimateSceptics@yahoogroups.com’
    Subject: RE: [New post] What’s up with RGGI? Moving the cap down.

    · The average rate of return on investments in carbon reduction activities 33%, claimed the Carbon Disclosure Project….. one of the ‘most successful investor engagement projects of recent years…..(according to James Mackintosh@ft.com)

    · 80% of the Global 500 firms now disclose their emissions. The next step to put this data to good use…said AXA Investment. In 2012 emission reduction activities totaled $11bn. Emission cutting by improved energy efficiency is making money. Said head of sustainability at Scottish Widows ‘Climate change is now happening in a significant way and there is a fair bit more in the pipeline because of time lags in the climate system. That is going to affect our portfolio. There is no question that the most important action is for policymakers to establish a carbon price. But in the meantime, no regrets energy efficiency measure are a good thing to encourage’. (sunnary from Mike Scott, FTft weekly review of the fund management industry, 19 Nov.2012, p.10)

    Perhaps of interest? The investment industry needs to be informed!?

    Sonja

  10. Indeed, a bureaucracy has been created, thus its first order of business is to maintain its continued existence and growth, never mind the original purpose. These are those “shovel-ready” jobs talked about: shoveling red tape, paper, and wasted time.

  11. Indeed, a bureaucracy has been created, thus its first order of business is to maintain its continued existence and growth, never mind the original purpose. These are those “shovel-ready” jobs talked about: shoveling red tape, paper, and wasted time.

  12. Mario Lento says:
    December 13, 2012 at 10:42 pm
    I’m hoping that the liberal states will go broke first. I live in CA and came from MA. I must be a glutton for punishment.

    Man, if it weren’t for bad luck, you wouldn’t have any luck at all!! :-P

  13. What do I care about what these states do? They are all blue states anyway. If they want to further constrain their economies, they should go for it.

  14. “Instead of declaring success and shutting down, RGGI is considering lowering the cap in hopes that it will lead to higher prices and still lower production”

    Same as in Europe. It is about pricing carbon credits. The “purpose” of the system is to find the highest price emitters will pay NOT to change their habits. If they shift to cleaner fuel, this subverts the process. Therefore, new caps need to be set to preserve the desired market prices for the credits, or “offsets.” As a crank libertarian Greenspan-type might say, “the markets aren’t working.”

    There is really no point much at elaborating the truth for Americans. Pointing out that Wall Street Traders and such are the real architects of these schemes only bring dumb stares from so-called “liberals” and indignant finger-pointing elsewhere by business-fetishist “conservatives.” All the while the traders and their PR firms and others making money off the schemes are laughing to the bank. Everytime they check the “dissent” that might threaten their profits, and see that it is directed at a government “bureaucracy,” that’s a win for them. The Government blamers can’t follow the money. They are, as Lenin recognized, “useful idiots.” Maybe other parts of the world can be saved from these fascistic crony-capitalist schemes.

  15. H.R wrote:
    “Now for some first-hand reporting from you; have you personally noted or detected any direct negative pricing impacts from the RGGI or does the scheme slip the knife through the ribcage rather painlessly? Are you getting any sense that the regional agreements will fall apart?”

    In my opinion there has not been much negative pricing to date if you define that as high enough pricing so that the RGGI region is significantly dis-advantaged relative to neighboring regions. However, if a new cap is set so low so that there is significant leakage then there will be negative pricing using that definition.

    I also think that the regional agreements will remain in place until there is irrefutable evidence that there has been negative pricing impacts. Moreover despite all the evidence to the contrary many believe that Sandy proves there is a need for this kind of effort.

  16. Old Nanook: What do I care about what these states do? They are all blue states anyway.

    Trouble is, when they go belly up, they move here. California didn’t used to be a New England clone.

  17. Lately our home phone land line has been plagued by telemarketer calls. I just found this site, and noticed this comment:

    My broker was Haydon Driscoll and I bought carbon credts for £5,000. This was through Emission Offset/Burbank of London. They were never registered with SJL Risk as was supposed to happen and their offices are now closed.

    This poor schmuck is now out £5,000 that he paid a telemarketer to purchase “carbon credits”. Caveat emptor, folks.

  18. If you look at the press releases RGGI makes when they tout the benefits of the program, they indicate the spending of the funds from allowance sales reduces CO2 emissions by increases in efficiency. They are very careful not to say the “cap” part of capn’trade is reducing emissions. Good, because they aren’t. It’s just a money grab. And the power generators that have to fork over the money feel good because they can buy the required allowances at the minimum price (<$2) instead of the $5-10 that was projected in the early days.

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