Greenhouse cap-and-trade system turns 10 (well, sort of) and is going strong (well, sort of)

  • FILE - In this Tuesday Jan. 20, 2015 file photo, a plume of steam billows from the coal-fired Merrimack Station in Bow, N.H. New Hampshire?s largest utility, Eversource Energy, announced Thursday March 12, 2015 that it has has agreed to sell its power plants. Eversource will sell its nine PSNH hydro facilities and three fossil fuel plants, including the Merrimack Station in Bow, Newington Station and Schiller Station in Portsmouth. (AP Photo/Jim Cole, File)Eversource Energy announced last week that it has has agreed to sell its power plants, including Merrimack Station in Bow. The plant is the town’s largest taxpayer. Jim Cole

  • Greenhouse gas emissions in the RGGI states, including N.H., have been falling and remain below the allowable cap, but it's un clear how much of that is due to RGGI. Congressional Research Service—Courtesy

Published: 8/23/2016 12:02:15 AM

New Hampshire holds a presidential primary every now and then, as you may have heard, but from my point of view, we participate in a much more intriguing “first-in-the-nation” event, one that recently turned 10 years old.

I refer to RGGI, celebrated not only because it is pronounced like the bad guy in Archie comic books (raising hopes that some day, somebody will create JGHED), but also because it is an innovative attempt to reduce greenhouse gas emissions created by the generation of electricity.

Incidentally, I’m calling this RGGI’s 10th birthday because August 2006 is when governors of seven Northeast and Mid-Atlantic states, including New Hampshire, signed a memorandum of understanding that set the rules for it, which really got it going. Other dates could be chosen as marking RGGI’s birth.

RGGI sets a cap for greenhouse gases created by electricity production, requires power producers to pay a certain amount of each ton of greenhouse gasses that their plants emit, and establishes a trading and auction system to set a price for that pollution. Fans call this a market-based approach to limiting pollution, but it’s a weird market imposed by the government, without any obvious parallel.

A similar cap-and-trade system had been started in Europe before RGGI, and one has since started in California, but in many ways RGGI still remains a poster child for the idea.

So it’s certainly innovative. But has it been successful?

“The cap likely had limited direct impact on the region’s power plant emissions,” is how Jonathan Ramseur, a specialist in environmental policy, put it in an April report by the Congressional Research Service, an analysis service for members of Congress. “From a practical standpoint, the RGGI program’s contribution to directly reducing the global accumulation of (greenhouse gas) emissions in the atmosphere is arguably negligible.”

Oh, dear. So RGGI’s a flop?

Well, no. Ramseur, who seems as close to an objective analyst of this political hot potato as I could find, praises it for funneling more than $2 billion from the auction sales into energy-efficiency programs, focusing attention on the issue and providing a test bed that can help us focus on the widespread efforts that will be needed to limit the damage of climate change.

But why does Ramsur think it hasn’t slashed greenhouse gas emissions? After all, emissions in the RGGI states have declined by up to one-half in 15 years (although New Jersey dropped out, so that’s a bit misleading).

The complication is that other factors, much bigger ones, have also affected emissions – notably the way natural gas has driven out coal and oil as a fuel for power plants, but also the economic slowdown and changes in New England industrial patterns. This makes it very hard to parse out the effect of RGGI.

For example, New England emissions fell by about one-eighth between 2000 and 2006, before RGGI even kicked in. Emissions have fallen much faster since then, however, so RGGI is probably a factor, but it’s hard to quantify.

The same goes for economic questions. Critics of RGGI fear that it boosts our comparatively high electricity prices, since the $2.4 billion that has been paid out over its lifetime for the right to pollute came from somewhere, and I doubt it was pulled from utility CEO’s wallets.

However, the same changes in fuel loads and economic mix, combined with other factors like the additional cost of “demand changes” to pay for grid certainty, have made it hard to parse the details of RGGI on electricity rates. It has certainly raised them, or at least slowed their decline, but it’s hard to say by how much.

“It is wrapped up into that big algebraic formula of what does it cost to produce a megawatt-hour of power” is how it was put by Martin Murray, spokesman for Eversource New Hampshire, when I queried him for some insight. (I am constitutionally unable to resist a quote that contains the phrase “algebraic formula.” )

Here’s another economic complexity: Higher rates don’t have to mean higher bills if we use less power.

One of the most interesting parts of RGGI is that most of the money paid by utilities when they buy the rights to pollute is distributed by states for energy-efficiency programs. (New Hampshire is the only RGGI state that uses some of the money directly as a credit on electric rates.)

While the benefits of improved efficiency are watered down by human behavior – as epitomized by the Jevons paradox, which describes how overall consumption of a technology usually rises even as its individual efficiency increases – this is still a clever approach. It creates a two-pronged attack on greenhouse gas emissions, first by making them more expensive to produce, then by using the extra cost to reduce the need for generating the gasses in the first place.

In my way of thinking, in fact, it might be RGGI’s most important impact. It gets us to focus on using energy more intelligently so we can generate less without hurting ourselves too much.

There have been some attempts to get New Hampshire out of RGGI, partly because our local control preference balks at being controlled by a multi-state, quasi-government entity. I imagine such attempts will continue, but my guess is that RGGI will stay in New Hampshire as long as it exists, if for no other reason than because it makes it easy for New Hampshire to comply with Clean Power Plan requirements.

I don’t know whether cap-and-trade will spread in the U.S. and around the world, or whether it will be replaced by some other system to incentivize (a horrible word that economists love) the necessary switch away from fossil fuels. But if RGGI ever goes away, I hope something by Josie and the Pussycats will be played at the funeral.

(David Brooks can be reached at 369-3313, or on Twitter @GraniteGeek.)

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