GOVERNMENT & POLICY
seen their utility bills increase just 0.4 to 1.0% as a result of their utilities’ purchase of emissions allowances. That works out to a sparse 73 cents more per month for the average household electricity bill. On the other hand, the funds generated through selling greenhouse-gas allowances Advocates, opponents turn to state CAP-AND-TRADE to utilities has generated $729 million in programs as climate-change bill falters in Congress state revenues. More than half of these JEFF JOHNSON, C&EN WASHINGTON revenues have been used to fund state-run energy-efficiency programs, many of which have created new jobs in the WITH THE apparent death in region. The energy-efficiency Congress of a national cap-andspending is also expected to retrade program to reduce U.S. sult in less energy use and lower greenhouse gas emissions, the CO2 emissions in the future, a attention of cap-and-trade ad“virtuous cycle” in the words vocates—and opponents—has of one advocate. The rest of the shifted to a handful of regional funds have gone mostly to a mix emissions reduction programs of other state energy programs. just now getting under way in RGGI covers the region’s 230 the Northeast, Midwest, West, fossil-fuel electric power plants, and California. Furthest along explains Peter Shattuck, a polis the Regional Greenhouse icy analyst with Environment Gas Initiative (RGGI) that Northeast, a Maine-based nonbrings together a coalition profit research and advocacy of 10 northeastern states— organization that tracks RGGI. Connecticut, Delaware, Maine, RGGI’s cap-and-trade program Maryland, Massachusetts, New works like this: Through a quarHampshire, New Jersey, New York, Rhode house gas emissions. On Fox News MORE GAS A shift terly auction, utilities must buy to greater use of Island, and Vermont. last August, Kerpen warned of the allowances to emit greenhouse natural-gas-fired Only in its second year, RGGI is a manexpansion of RGGI, charging that gases in sufficient quantities to power plants, datory program that covers the states’ money raised through selling emis- such as U.S. cover their emissions. The first electrical utilities. The program’s goal is sions allowances to utilities was compliance period includes Power Generating Co.’s Mystic 8&9 modest: a 10% reduction in carbon dioxide lining the pockets of Wall Street 2009 through 2012, when plant outside Boston, emissions by 2018 from 2005’s emissions investment bankers and that the owners must demonstrate that has led to a baseline (C&EN, Feb. 1, page 23). program would lead to skyrocketthey have bought enough allowreduction in CO2 In comparison, the moribund national ing energy prices for consumers. ances to match their emissions. emissions in the Northeast. program proposed a 17% reduction in emisA look at what has happened with The goal, according to Shatsions by 2020 from the same base. By either RGGI shows both allegations are tuck, is that utilities will begin measure, RGGI appears to be off to a flying wrong, but nevertheless, Kerpen’s to consider CO2 allowances and start: The region’s CO2 emissions have algroup has mounted efforts in New Jersey emissions as a “commodity” and a regular ready plummeted by one-third since 2005. and California to block regional cap-andpart of their business, like buying fuel and This achievement shows that cap and trade programs. controlling other operating parameters. trade works, stresses Anthony Paul, an That battle aside, it is clear CO2 emisThey will plan ahead and buy allowances in energy fellow at the nonprofit think tank Resions in the RGGI region have declined. advance on the basis of their projections of sources for the Future (RFF). “The failure But it is difficult to determine why: Has economic growth, electricity demand, and of the federal government to pass a greenRGGI been a highly successful experiment success in cutting CO2 emissions. house gas cap-and-trade bill will raise the to reduce CO2 emissions, or has it profited “They can make purchasing decisions on importance of RGGI and other regional profrom conditions beyond its control? The projected need, same as they do for natural grams,” he says, and “will help them flouranswer seems to be a bit of both. gas, coal, and other ingredients necessary ish.” He underscores that RGGI—as the only to run a power plant,” he says. operating U.S. cap-and-trade program—is a IN 2009, RGGI’s first year of operation, reBut when RGGI states set the emissions test-bed for cutting greenhouse gases. gional CO2 emissions covered by RGGI fell cap in 2005, Shattuck notes, they were unThe possible expansion of regional capa whopping 34% below historic levels, with aware of the flood of natural gas that was and-trade programs scares Phil Kerpen, little impact on the region’s electricity pricabout to come on the market as a result vice president for policy at Americans for es. In fact, RGGI supporters say the price of of new hydraulic-fracturing natural gas Prosperity, a funder of the Tea Party politielectricity in some parts of the region actuoperations in the eastern U.S. and new gas cal movement and an opponent of cap and ally dropped. And overall, consumers in the wells in the West. Natural gas, then, was trade and other programs to limit green10 states participating in the program have soon to be more plentiful and cheaper than U.S. POWER GENERATING CO.
REGIONAL CO2 REDUCTIONS
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the RGGI states had figured, confounding their calculations. Hence, the region’s fossil-fuel utilities began to shift from burning residual fuels (mostly diesel) and coal to using natural gas, which emits about half the carbon of coal. By 2009, the region’s coal use dropped by 30% from 2005 levels and oil use by 90%, according to a study by Environment Northeast. As a result, CO2 emissions from RGGI power plants in 2009 totaled 124 million tons, 9% below 2008 levels and 34% below RGGI’s regional cap of 188 million tons. It appears the region has beaten its emissions cap without doing much. Many economists have looked at the situation and attribute the CO2 drop to the switch to natural gas, reduced electricity demand because of the rotten economy, a host of energy-efficiency efforts in the region, and milder summer weather. But as a consequence, the demand for and price of CO2 allowances in the region has plummeted. In the most recent auction in early September, allowances went for $1.86 per ton, and one-quarter of the available allowances were not sold. In 2009, the
allowances were twice this price, and bids exceeded available allowance tonnage by two to three times, according to reports by Potomac Economics, which monitors the program for RGGI. For comparison, the proposed national program anticipated the cost of auctioned CO2 allowances to exceed $15 per ton. Shattuck acknowledges the cap is too high, but he sees many other benefits from the early years of the program. He says RGGI, by casting a spotlight on CO2 emissions, has provided an added incentive for utilities to shift to less carbon intensive fuels and spurred other plant-specific innovations to cut carbon. The experience also shows that significant CO2 reductions
The original RGGI agreement set the initial three-year period as a sort of shakedown to stabilize the emissions baseline, he adds, and beginning in 2014 emissions were to begin a 2.5% annual drop, achieving a 10% reduction in 2018. Schrag would not comment on whether the states may change the cap before the meeting. RGGI was designed from the outset not to be too stringent, says RFF’s Paul. “In the early years, the cap was to be just a little bit below a business-as-usual emissions level. The motivation of RGGI states was not so much to significantly reduce emissions in the region but to build political momentum. In other words, to put in place a program, design the mech-
BEATING THE CAP Utilities’ CO2 emissions plummet in northeastern states CO2 equivalents, millions of tons 200 RGGI cap level
180 160
Emissions from all RGGI facilities
140 120 2000
02
04
06
08
10
12
14
16
18
20
SOURCE: Regional Greenhouse Gas Initiative (RGGI), a coalition of 10 northeastern states
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can occur while using the existing infrastructure. The shift to natural gas took place by firing up the region’s idle gas power plants and shifting some power plants to technologies that allowed them to burn gas rather than oil or coal, Shattuck says. Also the RGGI data show that emissions can drop without much cost to consumers while raising significant funds for future energy-efficiency efforts. The auction generated some $358 million for weatherization and other energy-efficiency programs while at the same time creating jobs. With RGGI’s emissions reductions already exceeding expectations, “it seems like a lower cap level would be more appropriate for RGGI,” Shattuck says, and he is joined by other RGGI supporters in that view. But the decision to change the cap, he adds, is up to the states.
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IN 2012, the RGGI states will reexamine
the program, explains Jonathan Schrag, executive director of RGGI Inc., which administers the program. “Everything will be on the table,” he says, including the cap. WWW.CEN-ONLINE.ORG
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OCTOBER 18, 2010
anisms—like the auction—make them work, and show they can work. It provides a laboratory to learn about cap-and-trade programs.” He notes that the Northeast is not a carbon-intensive part of the country in terms of energy production. About half of the region’s electricity comes from nonfossil-fuel sources and the rest from RGGIregulated facilities. Slightly more than one-third of its electricity is generated by nuclear power plants. Rumors have circulated that RGGI may join with other regional programs and lead to a de facto national cap-and-trade program, with or without congressional leadership. Schrag was mum on such discussions, saying only, “We share best practices with other regions to show how RGGI works.” Altogether the regional plans include 23 states and four Canadian provinces. In the U.S., the three regional programs include one-half of the population and one-half of the U.S. gross domestic product, and account for one-third of greenhouse gas emissions. In Canada, they include three-
Regional programs are unlikely to tip the scales enough to halt the damage of climate change. quarters of the population and GDP and one-half of CO2 emissions. The regional compacts include the Western Climate Initiative, a coalition of states— Arizona, California, Montana, New Mexico, Oregon, Utah, and Washington—as well as British Columbia, Manitoba, Ontario, and Quebec. Its goal is to reduce greenhouse gas emissions by 15% below 2005 levels by 2020. The reductions would begin in 2012, and the program is economy-wide and includes manufacturers and transportation. The region represents 20% of the U.S. economy and 70% of that of Canada. THE MIDWESTERN Greenhouse Gas
Reduction Accord covers Illinois, Iowa, Kansas, Michigan, Minnesota, Wisconsin, and Manitoba. It is set to begin in 2012. It too would be economy-wide and plans to reduce CO2 emissions by 20% below 2005 levels by 2020. That target could decrease to 18% if prices of allowances become too high. Over the long term, it proposes to cut emissions 80% by 2050. In California, Assembly Bill 32, which became law in 2006, requires state regulators to develop a program to cut greenhouse gas emissions to 1990 levels by 2020, which is likely to exceed RGGI’s cuts. The state is now developing that program and has proposed the outline of an economy-wide greenhouse gas cap-and-trade reduction program, which would start in 2012. However, A.B. 32 is under attack, primarily by three oil companies—Valero and Tesoro, with headquarters in Texas but with refineries operating in California, and the owners of Koch Industries, a Kansasbased oil conglomerate. The Koch family also funds Americans for Prosperity. These oil companies have raised about $7 million to fund Proposition 23, a state proposition to repeal A.B. 32 that will come up for a vote in the November elections. Proposition 23 would block the state regulation of CO2 limits until state unemployment drops below 5.5% for four consecutive quarters—a feat that has not occurred in more than 30 years. California Republican Gov. Arnold Schwarzenegger has vehemently criticized the proposition and the oil industry sup-
port, accusing the oil industry of “selfserving greed” in a recent speech to the Santa Clara County Commonwealth Club. He warns that the proposition will kill the state’s clean technology industry, the fastest-growing sector of the state’s economy. At the September RGGI auction, for the first time, a group protested the organization. The protest was organized by “No NJ Cap & Trade,” which according to its website is a creation of Americans for Prosperity. “With this exception,” Shattuck says, “there has not been a backlash against RGGI. The lack of resistance is a reflection of the fact that there hasn’t been much negative impact.” No NJ Cap & Trade, he adds, “isn’t a grassroots organization but is an industry-funded group from outside the region, which has shifted its focus since the national cap-and-trade bill has stalled.” He argues that energy costs have not increased much as a result of the program, and cap and trade has been shown not to have had much of a negative impact on the regional economy. In fact, Environment Northeast studies show the funds have created jobs through energy efficiency and have helped increase funds to the states in a time of diminishing resources. The small economic impact of RGGI mirrors the conclusions of several studies that have predicted a proposed national CO2 emissions reduction would have little impact on economic growth. For example, a recent Energy Information Administration study looked at emissions limits far stricter than those expected from RGGI and predicted a 0.2% annual decline in U.S. economic growth going out to 2035. Such regional programs are “useful laboratories,” says Nicholas Bianco, an energy analyst with World Resources Institute. But studies by WRI have found regional programs are unlikely to tip the scales enough to halt the damage of climate change. “They can make an important chunk of the reductions as well as teach federal policymakers quite a bit about program design and implementation. But ultimately if we are going to make the level of greenhouse gas reductions that scientists tell us are necessary, we are going to need a national carbon emissions reduction program.” ■
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