Regional Greenhouse Gas Initiative
Global climate change is arguably the biggest and most difficult environmental challenge of the 21st century—the outcome may determine the ecology and climate of the Earth for millennia. The problem is big and the suggested solutions complex, potentially involving geo-political cooperation of unprecedented scale and technical/economic transformations affecting the way of life of every human being on the planet.
On the other hand, there are those who dispute the science, or the accuracy of the climate predictions, or the root causes of observed climate change, or the need for immediate action, or the types of action needed, or whether any action will do any good.
Assuming there is a problem, how do you even begin to address it? In New Hampshire, the approach is a four letter word—RGGI, the Regional Greenhouse Gas Initiative, the first cap-and-trade program for greenhouse gases in the U.S. RGGI is an agreement among nine* Northeastern and mid-Atlantic states to reduce global greenhouse gases. In New Hampshire, enabling legislation was passed in 2007.
What is 'cap and trade'?
The concept of "cap-and-trade" is simple: The government creates a limited pool of carbon dioxide (CO2) emission allowances. Major emitters of greenhouse gases (i.e. the several substances that are responsible for global climate change, primarily carbon dioxide) must use the allowances to cover their emissions. Over time, the government reduces the quantity of those allowances which will drive up the price and force polluters to find efficient, low-cost ways of reducing carbon emissions. The long-term goal: reduce greenhouse gas emissions significantly over time through measures that impose the lowest total cost on society.
Most current cap-and-trade programs and proposals, including RGGI, require emitters to purchase a significant portion of their allowances through an auction, instead of having them issued pro-rata to existing emitters. Allowances can also be bought and sold on the secondary market, providing an opportunity for companies that efficiently reduce their emissions to sell excess allowances, potentially for a profit. Auctioning allowances provides revenues which can be used to jump-start the transition of our energy system by funding energy efficiency measures and clean energy development.
The money that the power companies pay for the allowances comes from increased electric rates to consumers (businesses and individuals). In the run-up to RGGI, studies indicated the rate increase over time would be in the range of 2%, or $2 per month on the bill for a typical residential customer using 500 KWH. Larger users were expected to pay more. However, the most recent report by the New Hampshire Public Utilities Commission indicates lower than expected impacts, with a net average increase of $0.18 per month for residential customers, or a roughly 0.16-0.20% rise in electric bills.
How RGGI works in NH:
The five fossil fuel power producers in NH must purchase one allowance for every ton of CO2 emitted. These allowances can be purchased at quarterly auctions or on the secondary market via futures and options contracts or over-the-counter. The quarterly auctions, held by RGGI, cover all nine states and the proceeds are divided between them. RGGI compliance occurs in three-year control periods.
At the end of each control period, each regulated power plant must submit one CO2 allowance for each ton of CO2 emitted over the preceding three years. The first control period extended from 2009 – 2011, with a second spanning 2012 – 2014. We are currently in the fourth control period, which extends from January 1, 2018 to December 31, 2020.
Originally, 10% of auction proceeds were used to help low-income residential customers lower their energy use, with the remaining funds allocated to the Greenhouse Gas Emissions Reduction Fund (GHGERF). Legislation passed in 2013 replaced the GHGERF with the Energy Efficiency Fund (EEF), and dictated that only the first $1 ton of each sale of CO2 allowances be used to fund the EEF. The remaining proceeds are rebated directly to utility ratepayers.
EEF and GHGERF funds have been used to support low-income energy assistance programs, education and outreach programs for the building trades, auditing and bench-marking for municipalities and schools, energy management for campuses, along with many other projects.
In total, New Hampshire has collected $94 million in revenue since joining the program in 2008. In 2010, Gov. Lynch diverted $3 million from the GHGERF to the state's general fund. Several other states in RGGI have redirected such funds.
One of the goals of RGGI is to encourage the power plants to emit less CO2. Coal and oil burning plants have more of a challenge as these fuels emit more CO2 than natural gas. In addition to finding ways to clean up their CO2 emissions, utilities can explore capture and sequestration which involves storing their CO2 (difficult to execute in the Northeast), and offsets, in which the utilities invest in CO2 reducing or absorbing projects such as planting trees. Offset credits may be used in place of allowances to meet up to 3.3% of a plant's CO2 emissions.
With the passage of HB 306, NH joined the 8 other RGGI states in lowering the cap on carbon dioxide emissions from the current 165 million tons to 91 million tons in 2014. The cap would be lowered an additional 2.5% per year from 2015 to 2020. Each state ratified the new changes.
A 2012 law contains a contingent repeal of RGGI if two or more New England states withdraw or if a state which has at least 10% of the total load of the participating states withdraws.
*New Jersey withdrew from the initiative in 2011.
In August 2015, the Environmental Protection Agency released the Clean Power Plan (CPP), which requires states to develop and implement plans to meet targeted reductions in power plant emissions. RGGI is generally compatible with the CPP and would have served as the primary means by which participating states meet its requirements, though the program might have needed to be adjusted and extended to do so. A federal court imposed a stay on the CPP in February 2016. Before the case was settled, the Trump administration announced it was pulling back from the CPP with a plan to replace it with a new policy on carbon emissions.
"New Hampshire should continue to participate in RGGI."
- RGGI benefits consumers, including low-income ones, as a significant portion of the New Hampshire share of the net proceeds of the RGGI auction is reinvested in energy conservation. Studies show that over time the benefits of this reinvestment to consumers outweighs the costs of increased electricity bills.
- RGGI investments are good for businesses and will create jobs. Grants handed out by the PUC directed towards commercial and industrial consumers will help cut costs and help them to remain competitive over the long-term, while investing in energy efficiency and clean energy can attract green companies to New Hampshire, positioning both to be leaders in the transition to a clean energy economy.
- Selling allowances, rather than giving them away, is the right way to go. Opponents of auctions argue that allocating allowances freely rather than having utilities pay for them would prevent emitters from being forced to pass the cost of allowances through to consumers, but regardless of whether allowances are auctioned or given away for free, each allowance has an opportunity cost - essentially the cost of not selling that allowance on the open market. In general, these costs are passed along to consumers. If the allowances are allocated for free, the entities who receive them may actually earn windfall profits, since they are not required to pay for the allowances, and still raise prices. This is the situation that occurred in Europe when a cap-and-trade was first introduced. By auctioning allowances, raising revenues, and then reinvesting that revenue to boost clean energy and energy efficiency, a cap-and-trade program can both reduce emissions and ensure long-term benefits for consumers.
- RGGI benefits our citizens and the world. Taking this first step with RGGI will push the nation, and ultimately the world, towards a carbon reduction program.
- By investing in energy efficiency and renewable energy, New Hampshire and the other RGGI states will reduce their dependence on fossil fuels, which are subject to price volatility, potentially saving money for residents and business in the future.
- RGGI will be key to meeting the requirements of the Clean Power Plan, once a federal court stay is removed and the plan put into full effect.
"RGGI is bad for New Hampshire."
- RGGI has damaged New Hampshire economically and competitively. Higher energy costs in New Hampshire have damaged the state's competitive position. They deter business investments and hence affect incomes and jobs throughout the state. Electric rates have gone up as a result of RGGI. The impacts will vary as the price of the allowances varies, but this can be expected to increase over time as allowance prices increase.
- RGGI was unnecessary. The same energy efficiency benefits that may be enabled by RGGI could have been achieved without RGGI, simply by increasing the System Benefit Charge rates and reinvesting that money in energy efficiency.
- RGGI increases costs of energy production within the region but has no effect outside the region. This may result in pushing energy production or economic activity to other regions which use more polluting fuels, thereby undermining any carbon reduction benefits from the program.
- The secondary market for carbon credits in RGGI is not regulated. There are concerns that speculators will get involved, increasing market volatility, and siphoning off profits that will drive costs up to consumers. There are reports that some traders have gotten rich in the European carbon credit market and there have been problems with volatile prices. It is not clear what happens to RGGI if or when the federal government implements a national approach to carbon reduction. Why should NH citizens bear the costs of cap-and-trade while the 40 nonparticipating states have a free ride?
- There is disagreement among scientists as to whether controlling CO2 emission is the answer to global warming. We are now paying for a debatable scientific theory.
- New Hampshire citizens have been subjected to a cost increase in their utility bills through legislative action. This seems like a tax increase that was never disclosed or voted on by the public.
- The revenues for RGGI are being used for the wrong purpose. They should be passed on to consumers or used to reduce taxes. An economic study by UNH professor Dr. Ross Gittell, concluded that by 2015, found that the overall economic impact would be positive if 100% of the RGGI auction revenues were used to reduce business taxes. Using RGGI auction revenue in this way would increase the state's economy by $78M and add 884 jobs, mostly in construction and services.