Cap and trade went nowhere in Congress early in the Obama administration, but that’s not the end of the emissions-limiting scheme’s story in the United States, not by a long shot.

While Washington politicians fiddled on climate change legislation, 10 northeastern states embarked on their own scheme to reduce CO2 emissions, setting a total C02 limit and auctioning off allowances to fund energy efficiency and renewable energy programs. Supporters of the Regional Greenhouse Gas Initiative say it’s helped to cut emissions – and a new report [PDF] backs up the claim.

cap and trade, rggi
image via Shutterstock

So what’s Chris Christie’s problem?

A year ago, the New Jersey governor announced his state was pulling out of RGGI (often referred to as “Reggie”). Now, two environmental groups, the National Resources Defense Council and Environment New Jersey, have sued the Christie administration, charging that the governor and his Department of Environmental Protection violated state law in exiting the cap-and-trade compact.

Christie has said that RGGI “does nothing more than tax electricity, tax our citizens, tax our businesses, with no discernible or measurable impact upon our environment.”

But RGGI’s three-year progress report showed that with the system in place, average annual CO2 emissions fell by 23 percent in the Northeast U.S. over the last three years when compared to the previous three years.

Now, there is some debate about how extensive RGGI’s role was in the decline. Critics point out that the economy was weak during the period, which can drive down energy use, but RGGI said the decline in electricity consumption in the region – just 2.4 percent — was tiny compared to the fall in emissions.

RGGI attributed the decline in emissions to “increased use of natural gas for electricity generation resulting from lower natural gas prices; state investments in energy efficiency and renewable technologies; increased use of renewable energy, in line with state renewable portfolio standards; and weather patterns.”

Putting all the factors together, “CO2 emissions were collectively reduced to 33 percent below the annual pollution cap of 188 million short tons.”

And all of that appears to have been accomplished at fairly modest cost.

The big conservative criticism of cap and trade has always been that such schemes would drive up electricity rates. An Analysis Group study [PDF] released last fall did show rates rising in the RGGI states, but only by 0.7 percent. Meanwhile, the study said the $912 million that power companies had paid for allowances brought investments in efficiency and renewables that returned value to the states — $1.6 billion worth of benefits – that far outstripped the modest electrical rate increases.

According to RGGI Chair Collin O’Mara, the results from the system’s first three years of operation “demonstrate the power of state and industry cooperation in addressing our greatest environmental challenges. The power sector has stepped up to the plate, working with the RGGI states to meet and exceed emissions targets well ahead of schedule.”

The nine states remaining in RGGI are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. In those states, power plants that put out over 25 megawatts of power are required to buy a credit for each short ton of emissions. The allowances were sold at auction and priced at the lowest bid.

That aspect of the program was a bit unusual — some cap and trade schemes simply give away allowances to power producers. But the companies then pass through the “market value” of these allowances in their bills to consumers, meaning that the cost of electricity to consumers will include the cost of allowances, whether those allowances are purchased or obtained free of charge. RGGI said that by selling the allowances, it ensured that their proceeds would benefit the public by funding investment in efficiency and clean energy.

rggi, cap and trade
image via Analysis Group

Once companies have allowances, if they reduce their emissions, they can then sell or trade unneeded allowances in quarterly auctions. That’s not seen as a big driving force right now, however, with power demand relatively slack and natural gas cheap, allowances are at or near their floor of just below $2 per short ton.

This has some critics to label the program meaningless or even a failure, an assessment that Robert Stavins, director of the environmental economics program and chairman of the environment and natural resources raculty group at Harvard, disputes.

The “relatively low auction reservation price does lead to very small impacts on electricity prices, and produces revenues for participating states, revenues which those states would surely claim are of value for state-level energy-efficiency and other programs that indirectly do affect CO2 emissions,” Stavins wrote on his blog in April. “So, the real bottom line is that low RGGI allowance prices are not a consequence of poor system design or a fatal flaw of cap-and-trade systems in general, but rather a consequence of what are in reality some exogenous coincidences that have turned out to be good news for the environment.”

The ultimate goal of the program is to reduce emissions to 10 percent below their 1990 level by 2018.

As for the suit against the Christie administration, NRDC and Environment New Jersey say state law requires a public comment period before repealing regulations such as RGGI, and since no such period was held “the groups contend that the program is still law, and the administration, and New Jersey utilities, must abide by it.”



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