Grant Bosse: RGGI doesn’t work – let’s not make it worse
Five years in, the Regional Greenhouse Gas Initiative isn’t working out the way its supporters said it would, and they want to make drastic changes to the program in order to get state revenue flowing again.
When New Hampshire entered into the 10-state compact in 2008, the economy was on the verge of recession. One minor benefit of our half-decade in the economic doldrums is that it mitigated the impact of the RGGI program on ratepayers. The program has had absolutely no effect on the environment, but it has done so while costing much less than it could have.
Under RGGI, 10 northeastern states agreed to cap the amount of carbon dioxide emitted from a group of fossil fuel power plants and auction off the right to emit CO2 through a series of quarterly auction. Proceeds from the sale of CO2 allowances would go back to the states, which would use the revenue to fund energy efficiency and weatherization programs.
The fatal flaw of RGGI’s first five years is the same problem at the core of all central planning. The very smart, very well-meaning people who designed the interstate carbon trading compact could not anticipate the large shifts in the regional electricity market that swamped any impact RGGI had.
The first year went according to plan. The price of a CO2 allowance fluctuated between $3 and $4. That generated revenue above $100 million each of the first three auctions in which all 10 state participated. New Hampshire brought in nearly $12.5 million in that period, using some of the revenue to cover one of then-Gov. John Lynch’s many budget crises, some to fund the state’s weatherization program, and the rest of set up the Greenhouse Gas Emissions Reduction Fund., administered by the Public Utilities Commission.
The GHGERF wasn’t just a horrible acronym. It was also a prime example of what happens when unelected state officials are given the power to make appropriations. They awarded money to Dartmouth College and Dannon subsidiary Stonyfield Yogurt to pay for capital improvements that would lower their electric bills. Some would argue that an Ivy League college and an international food conglomerate could afford their own energy upgrades. Millions more went to green energy consultants. The PUC even gave grants to many of the groups advising them on how to spend RGGI money.
The PUC handed out more awards in RGGI’s first two years than the program could fund in three. While the PUC was writing checks, RGGI was melting down.
The recession and falling natural gas prices resulted in less demand for coal-fired electricity, and that meant power producers were going to come in well below the RGGI carbon cap.
Imagine playing musical chairs, with 10 chairs and only seven players. Since you know there are going to be plenty of seats when the music stops, there isn’t much urgency. Likewise, the market for RGGI allowances collapsed, and the secondary trading market disappeared.
The RGGI auction price has remained at or near the price floor since June 2010, and the number of bidders has dropped from 84 to a low of just 29. In the September 2011 auction, 82 percent of the allowances on the block went unsold, even at the floor price. A quarter to a half of allowances offered are routinely unsold. Low prices and low volume have meant much lower state revenue, and that means less money for New Hampshire’s Greenhouse Gas Emissions Reduction Fund.
While Gov. Chris Christie took New Jersey out of RGGI two years ago, the remaining states are hoping to boost RGGI revenue by dramatically lowering the carbon cap. Their recent proposal would cut the CO2 emissions allowed by 45 percent next year, with annual cuts of 2.5 percent for the next four years.
Limiting supply would seemingly prompt higher demand. Power plants would be forced into a bidding war for the few carbon allowances on the market, and states would get more money. All of these costs would ultimately be borne by ratepayers.
RGGI supporters will again claim that lower CO2 emissions would help combat climate change. That’s hogwash. The 45 percent cut would lower covered emissions by about 70 million tons per year, which certainly sounds like a lot. Until you remember that total U.S. emissions, from fossil fueled electricity along, are 6.8 billion tons annually. That doesn’t include transportation, agriculture, or the rest of the world. RGGI could not possibly make any measurable difference in global CO2 concentrations.
RGGI was never designed to actually do anything about climate change. It was designed as a model for national cap-and-trade legislation, and as a revenue stream for green energy lobby.
As the Legislature considers whether or not to lower the RGGI carbon cap, it should be honest with us about how the program actually works.
(Grant Bosse is editor of New Hampshire Watchdog, an independent news site dedicated to New Hampshire public policy.)