Regional Greenhouse Gas Initiative resets pollution cap

The nine member states of the Regional Greenhouse Gas Initiative — the nation’s first power plant emissions reduction and trading program — have opted for a new lower cap on those emissions, the strictest one they were considering.

Beginning in 2014 the cap will be 91 million tons, which is the actual emissions level right now. It’s a 45 percent reduction from the current cap of 165 million tons. The cap will then decline by 2.5 percent each year until 2020 representing an additional 17.5 percent decrease.

The move is being hailed by environmental groups, none more so than Environment Northeast, which had been the unofficial RGGI (pronounced reggie) watchdog.

“It’s great news,” said Peter Shattuck, ENE’s director of market initiatives. “It’s a very positive development and hopefully the start of pendulum swinging back to more concern about air quality and climate.

“Going with any other cap would have been a mistake, but it wasn’t an easy process to get all the states on board.”

The need to lower the cap became apparent not long after RGGI began operating in 2009 as a means to reduce power plant emissions 10 percent by 2018. The price of natural gas, which is cleaner than other fossil fuels for power plants, began plummeting and plants began switching to it as their primary fuel. The result was drastically lower emissions – so low, that one state, New Jersey, opted out of RGGI a little over a year ago.

The low emissions also had a financial impact on the income RGGI is designed to generate for each participating state. The 209 power plants that fall into RGGI essentially pay for the right to pollute. For every ton of carbon dioxide each emits, a plant must buy one allowance from the state at quarterly auctions.

But because emissions were so low, the auction price has tended to stick at the lowest allowable level – $1.93, and many allowances were left unsold. For example, in the most recent auction in December, only 53 percent of the allowances were sold.

Even so, states overall have realized a total of $1.1billion from RGGI auctions; Connecticut alone has received $65 million. Those revenues are also viewed as economic and job multipliers, calculated at about $1.6 billion for the region so far and 16,000 job years.

Under the rules of RGGI, at least at least 25 percent of the auction proceeds go to consumer energy benefits. Connecticut has chosen to put nearly 70 percent towards consumer energy efficiency mainly through the Energy Efficiency Fund. Twenty-three percent goes to the Clean Energy Finance and Investment Authority for renewable energy and the remainder goes to other energy efficiency programs and administration.

But the new tighter RGGI rules, which also address issues such as unsold allowances – about a quarter of those that have been available over the four years of the program, and dealing with a glut of banked allowances that could keep prices low, come with a potential consumer price tag.

Power plants are allowed to pass along their auction costs, which have been estimated at about 30 cents extra a month on electric bills in Connecticut based on the current $1.93. With a lower cap pushing auction prices up, it’s not clear what that would mean for ratepayers, though RGGI claims consumers would see an increase of less than one percent.

Dan Esty, the commissioner of the Connecticut Department of Energy and Environmental Protection, who represent the state on RGGI, has been mindful in the past of the consumer impact and the need to weigh that against the environmental gains of cleaner air. In a statement Esty said: “RGGI has been an enormous success in reducing carbon emissions, providing incentives for cleaner power generation, improving air quality, and funding clean energy initiatives – all at a minimal cost to electric ratepayers.”

Implementing the new RGGI guidelines will not require legislative action in Connecticut. Only two states in the compact will need to do that – Maine and New Hampshire.

In the meantime, Shattuck is hopeful RGGI’s success will be an impetus and model for other states, regions and even the federal government, especially in a post storm Sandy, post Obama reelection climate.

“It demonstrates to EPA and other states that there are means of reducing emissions with a market-based climate policy,” he said.