Guest post by Ric Werme
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 firstname.lastname@example.org . All submitted written comments will be posted at http://www.rggi.org/design/program_review/stakeholder_comments.