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WHY RGGI IS FAILING & UNLIKELY TO CUT CO-2 EMISSIONS BEFORE 2030 Investigative Report by Mark Lagerkvist

By   /   November 17, 2010  /   1 Comment

A very inconvenient truth is surfacing at the Regional Greenhouse Gas Initiative:  The Northeast’s 10-state cap-and-trade scheme is failing.

For the next 20 years, RGGI is not likely to significiantly impact carbon dioxide emissions, according to projections by its own consultants and energy officials.  A New Jersey Watchdog analysis of their data and estimates shows:

The cause appears to be an epic miscalculation in RGGI’s projection of carbon emissions.  In 2005, utilities released 184.4 million tons of CO-2.  However, emissions plummeted by one-third – 60.7 million tons – between then and 2009, when the cap began. 

RGGI is the nation’s first mandatory cap-and-trade program.  It includes New Jersey, New York, Connecticut, Massachusetts, Maine, New Hampshire, Vermont, Rhode Island, Delaware and Maryland.

The unexpected decline in CO-2 emissions was a main topic of discussion at a Nov. 12 meeting of RGGI stakeholders.  Two primary reasons were offered in a draft white paper by the New York State Energy Research and Development Authority (NYSERDA):

  • Electric generators switched to natural gas, a cleaner-burning fuel, for economic reasons.  The price of natural gas dropped 42 percent since 2005, while the cost of coal and petroleum rose 40 percent and 34 percent, respectively.
  • A seven percent decrease in the demand for electricity – attributed to a stagnant economy, cooler summer weather and unspecified increases in energy efficiency.

“There are some assumptions here and leaps of faith,” NYSDREA program manager Karl Michael told stakeholders during the presentation.  “You can’t prove that a certain thing caused a certain thing.”

While failing its primary mission, RGGI has succeeded in auctioning $729 million of CO-2 permits on behalf of the states.  Under RGGI, utilities are required to obtain an allowance for each ton of CO-2 they emit.  The costs of purchasing those permits are ultimately passed along to consumers through higher rates for electricity.

Now RGGI also faces a problem with the trading component of its cap-and-trade program.  By design, CO-2 permits are supposed to increase in scarcity and cost, squeezing utilities to cut emissions. Instead, permits are plentiful and relatively cheap because the utilities managed to beat RGGI to the punch.

CO-2 allowances fell to $1.86 a ton at the auction in September – far below roughly half of last year’s record high of $3.51 a ton.  A study by ICF Consulting, a RGGI contractor, predicts the auction price will remain constant at $1.86 a ton through 2030.

RGGI may represent the last gasp for CO-2 cap-and-trade in the United States.  Federal legislation that stalled in a Congress controlled by Democrats has little hope of passage next term in a House won by Republicans in the November election.  Even President Obama seems ready to jump ship.

“Cap-and-trade was just one way of skinning the cat; it was not the only way,” Obama said in a Nov. 3 post-election press conference.  “It was a means, not an end.  And I’m going to be looking for other means to address this problem.”

Without an act of Congress, the fate of cap-and-trade relies on a budding network of regional programs. 

RGGI is the prototype for two other regional systems scheduled to start in 2012.  The Midwestern Greenhouse Gas Reduction Accord would bring cap-and-trade to Illinois, Michigan, Wisconsin, Minnesota, Iowa and Kansas.  The Western Climate Initiative would add California, Oregon, Washington, Arizona, New Mexico, Utah and Montana.  

Together, the three programs would encompass 23 states with roughly half of population in the U.S. – plus four Canadian provinces (Ontario, Quebec, Manitoba and British Columbia) that contain more than three-quarters of that nation’s populace. 

Whether RGGI succeeds or fails is crucial to cap-and-trade’s end run around Capitol Hill.  The non-profit cooperative’s survival may rely on its ability to adapt to a changing political and economic climate.

The RGGI stakeholder meeting on Nov. 12 was an early step in a comprehensive review scheduled for 2012.  The evaluation is mandated by the Memorandum of Understanding between the participating states.

Meanwhile, RGGI will continue to sell CO-2 permits.  It plans to peddle another 42 million allowances at its next auction on Dec. 1.

# # #

Previous New Jersey Watchdog stories on this subject include:

THE SECRETS TEN STATES & WALL STREET DON’T WANT YOU TO KNOW http://newjersey.watchdog.org/2010/07/28/cap-trade-scheme-is-clouded-in-secrecy/

NJ WATCHDOG SUES STATE OVER CARBON AUCTION “SECRETS” http://newjersey.watchdog.org/2010/09/06/1016/

CAP & TRADE SCHEME CHILLS AS GLOBAL WARMING AUCTIONS COOL http://newjersey.watchdog.org/2010/09/12/cap-and-trade-shivers-as-global-warming-auctions-chill/<!––>

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Mark Lagerkvist is New Jersey Watchdog's investigative reporter. He can be reached at mark@NJwatchdog.org.

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