Seacoast Online: RGGI move expected to generate $2.2 billion
By Deborah Mcdermott
The Regional Greenhouse Gas Initiative to reduce carbon emissions from power plants is undergoing a significant overhaul intended to make it viable through at least 2020.
Its board of directors, comprised of public utility and environmental officials in the nine-state region, recently voted to lower the cap on carbon dioxide emissions regionwide to 91 million tons in 2014, and by 2.5 percent each year thereafter until 2020. The change is expected to generate $2.2 billion for the states in the next six years, according to economic consultants the Analysis Group of Boston.
The cap is now at 165 million tons, set by the board in 2005 — four years before RGGI began to operate and before the recession. The recession, rise of cheap natural gas and energy efficiency measures set up by RGGI all contributed to a cap too high to begin with, said experts. The 91 million ton cap is almost equal to the 92 million tons of carbon dioxide currently being emitted in the nine-state region.
“The good news is that we are substantially lower than we thought we would be for all these reasons,” said N.H. Commissioner of Environmental Services Thomas Burack.
RGGI is the nation’s first market-based regulatory program to reduce greenhouse gas emissions. It is set up as a “cap and trade” program. A cap is set on the amount of carbon dioxide that can be emitted by power plants. An equal number of “allowances” (similar to shares of stocks or bonds) are assigned a dollar value and traded through auctions held several times a year.
RGGI had been “awash in extra allowances” due to the high cap, said Peter Shattuck, director of Market Initiatives at the Boston-based organization Environment Northeast. Because of the glut, an individual allowance sells for $1.98, which board members agreed was too low.
“It became clear that a substantial cap reduction was justified, or the program was going to become ineffective,” said David Littell, a board member and of the Maine Public Utilities commissioner.
Since 2009, states in the consortium have received millions of dollars from the auctions — $34.2 million for Maine and $42 million for New Hampshire. Both states, for the most part, reinvested the money in energy-related projects — as required by the laws that created RGGI in each state.
In 2010, then-Gov. John Lynch took $3.1 million out of the fund to offset budgetary shortfalls, as did the governors of New York and New Jersey. The Garden State wiped out all of its funds and in 2011 withdrew from RGGI. N.J. Gov. Chris Christie called RGGI “nothing more than a tax on electricity, a tax on our residents and on businesses.”
RGGI is administered through a fee added to electricity ratepayers’ bills in the nine-state region. For instance, PSNH’s residential customers using 500 kilowatts of electricity a month currently pay 15 cents on their monthly bill, according to information from PSNH.
“Certainly, any costs are ultimately paid by the consumers of energy. You and I are paying that,” said Martin Murray of PSNH. “We will do what the rules and laws tell us to do, but as the price of carbon emission allowances increase (which it will do under the new cap), we will be the ones who will pay.”
Murray said PSNH believes “if the benefit is to raise dollars for energy efficiency, it can be done without significant dollars (to ratepayers) behind it.”
Corey Lewandowski of the N.H. chapter of Americans for Prosperity called RGGI “a scam” and a “hidden tax.”
RGGI’s board hired the Analysis Group to create economic models on long-term effects of changes to the program. Managing principal Susan Tierney said modeling shows a rate increase of less than 1 percent through 2020 under the cap levels proposed. For residential customers, the increase will be .3 percent; for business, .8 percent and for industrial, 1 percent. “Those are out-of-pocket payments for electricity customers,” she said.
Modeling indicates coal-fired and inefficient natural gas plants will operate less under the new cap. New, efficient natural gas plants will replace both over time, she said. Natural gas emits about 50 percent less greenhouse gas than coal-fired plants, thus further reducing carbon emissions, she said.
This is where energy efficiency plays a part, said Mike Fitzgerald, who oversees RGGI for the N.H. Department of Environmental Services. “When you invest in energy efficiency, you reduce demand on electricity because you don’t need as much,” he said.
That makes a significant difference during “peak use” days in the middle of summer, for instance, when power plants that are used infrequently are geared up to meet demand.
The Maine and New Hampshire legislatures must now pass new RGGI legislation to replace the law that set up RGGI.
Currently in Maine, and up until this year in New Hampshire, proceeds from RGGI auctions were used primarily for energy efficiency programs benefiting residents, businesses and industries. The law was changed in the last session of the N.H. Legislature. Now the first dollar raised at auction goes to the NHPUC CORE program, which primarily allows ratepayers to take advantage of purchasing energy efficient appliances and lighting. Any amount raised beyond $1 goes to ratepayers for bill reduction. Maine Gov. Paul LePage wants to make a similar change, except he wants to use all revenues to reduce electricity rates for businesses and residents.
Tierney said both approaches have their champions.
“By putting money back into the pockets of customers, it has the near-term effect of providing value to consumers,” she said. “If you invest the same amount in energy efficiency, we saw two things in our modeling: Some customers would see their own energy usage go down, but every customer would benefit. If you sum up the lower demand due to energy efficiency, (aggregate energy supplier) ISO New England doesn’t have to run as many expensive power plants.”