Cutting Carbon, Controversy in the NE

Harold Blinderman | Oct 11, 2011

 

New Jersey Governor Chris Christie’s decision this May to withdraw the state from the Regional Greenhouse Gas Initiative (RGGI) by year-end continues to fuel a national debate on the merits of regional market-based efforts to reduce emissions of greenhouse gases.  With participating states now preparing for a mandatory, comprehensive program review as required by the original RGGI agreement, many clean technology businesses are openly wondering: what’s next for RGGI?

RGGI is the first mandatory, market-based greenhouse gas emissions reduction program in the United States.  Currently comprised of 10 Northeast and Mid-Atlantic states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont ), the program requires large power producers to purchase credits or allowances for each ton of carbon dioxide emitted.  That money is then allocated to state participants for investments in such initiatives as energy efficiency and clean energy projects. 

Proponents contend that RGGI not only reduces carbon dioxide emissions but, through auction proceeds channeled back to each participating state for investment, also provides significant opportunities for improving energy efficiency and fostering the development of a clean energy economy.  By encouraging the RGGI participants to invest in energy efficiency and renewable energy programs, those favoring RGGI observe that the program strives to help businesses and consumers reduce their energy needs and lower electricity costs and, just as importantly, bolsters the economy by creating clean energy sector jobs.

Critics of RGGI, such as Governor Christie, argue that RGGI is an ineffective mechanism for addressing global warming and reducing greenhouse gas emissions.  In prepared remarks announcing New Jersey’s intention to withdraw from RGGI, Christie argued that “RGGI does nothing more than tax electricity, tax our citizens, tax our businesses, with no discernible or measurable impact upon our environment.”  While there have been efforts in other RGGI states, notably Delaware, Maine, New Hampshire and New York, to withdraw from the regional pact, the remaining nine states continue to hold together in support of the RGGI framework.

Business Support

In fact, more than 200 Northeast-based businesses recently voiced their support for RGGI. These businesses have urged each of the RGGI state governors to build and improve upon a program designed to reduce carbon emissions from the region’s power plants by 10 percent by 2018 while boosting the region’s economy through strategic investment of RGGI proceeds allocated to each of the RGGI states. 

In an open letter dated July 2011, a range of businesses pledged support for RGGI, noting that “strong clean energy and clean air policies create jobs and stimulate economic growth.”  At the national level, a July 2011 Brookings Institution report concluded that the “clean economy” employs around 2.7 million workers across the country, with more than 450,000 in the RGGI states alone, and “offers more opportunities and better pay than the national economy as a whole.”

Regarding RGGI’s impact on the regional economy, an October 2010 Synapse Energy Economics, Inc. report estimated that, in those state focusing on energy efficiency, electricity savings range from just over $2 to just under $4 for each $1invested by the RGGI program.  A February 2011 report released by RGGI calculated that approximately 80 percent of RGGI proceeds, which overall surpass $900 million,  have been and are being invested in myriad strategic energy related programs including energy efficiency, renewable energy and direct bill assistance. 

Most recently, a September 2011 assessment of Economy-wide Benefits of RGGI by Environment Northeast offers the view that “auctioning of allowances and investing the proceeds in energy efficiency is arguably the key policy innovation of RGGI” because it creates wider value than any other approach.  According to Environment Northeast, efficiency savings makes its way “into the local economy, boosting economic output and increasing employment across the region.”

The Backdrop

Against this backdrop of competing points of view, preparations are now underway in support of the 2012 RGGI comprehensive program review.  Consistent with the original RGGI agreement, the full scale assessment will evaluate such areas as program success, program impacts, program operations, additional emissions reductions, imports and emissions leakage, and offsets. To date, three stakeholder meeting have been held.

So what’s next for RGGI?  The answer likely involves tweaking of the RGGI cap, trade and invest model rather than radically overhauling or abandoning the RGGI concept.  The economics of RGGI suggest that it functions as designed, but the politics are still playing out. While the zeal of reform may prompt some to question RGGI, governors taking up the 2012 program review will be mindful of the contributions made by RGGI to the region’s energy and economic development platform.



Harold M. Blinderman is a partner in the Hartford office of Day Pitney LLP. He regularly represents large utility and company clients in siting, permitting, compliance, transactional, and enforcement matters at the federal and state level.