Obama’s Plan May Be on Hold, But Cap-and-Trade is Still Advancing in the States

Tom Borelli
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Posted: Sep 18, 2010 9:00 AM

While the prospects for passing a federal cap-and-trade law in the Senate are dwindling, this economically-damaging energy policy is alive and well in the states.

Ten northeastern states are currently implementing a regional cap-and-trade system known as the Regional Greenhouse Gas Initiative (RGGI). Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont are mandating that utilities reduce their carbon dioxide emissions 10 percent by 2018.

Examination of the RGGI experience unmasks cap-and-trade as a con game from progressive governors to transfer taxpayer money to bloated state coffers and to special interest groups. Initiated in 2003 when then-Governor George Pataki (R-NY) sent a letter to regional governors calling for states “to develop a strategy that will help the region lead the nation in the effort to fight global climate change,” RGGI became the first program in the nation to use cap-and-trade to reduce greenhouse gases.

Under RGGI, participating states require utilities to purchase a permit or an allowance for each ton of carbon dioxide the power plant emits. Utilities buy carbon dioxide allowances in an auction and the revenue from the sale goes to the state. If a utility’s emissions exceed its allowance, the power plant must purchase additional carbon permits or it can sell its excess allowances. From 2009 to 2014, emissions are capped at 188 million tons annually. In 2015, the amount of allowance available for auction is reduced 2.5 percent for the next four years to meet the 10 percent reduction emission target.

Not surprisingly, the states’ proclaimed intention to use the revenue “to invest proceeds in consumer benefit programs to build a clean energy economy” have gone off-track.

Despite the claims by governors that RGGI combats climate change and spurs investment in renewable energy, this cap-and-trade scheme is an energy tax with the revenue being used to plug budget gaps.

In New Jersey, Governor Chris Christie moved $65 million that the state generated from its carbon dioxide auction to New Jersey’s general fund and New York Governor David Paterson took $90 million from RGGI auctions to help fill a gap in his state’s budget.

Maryland and New Hampshire also have raided the states’ “climate change lock box,” which supposedly holds the emissions revenue for other matters. According to Stateline.org, “New Hampshire lawmakers voted to take all of the state's expected $3.1 million share of the proceeds and use it to help plug a $295 million budget hole,” and Maryland lawmakers agreed “… to divert RGGI money from energy-efficiency programs toward helping low-income residents with their power bills.”

RGGI state revenue has also found its way to special interests groups. Fergus Cullen, a columnist for the New Hampshire Union Leader, discovered that $400,000 of RGGI funds were given to environmental advocacy organization Clean Air Cool Planet and another $148,927 was given to Stonyfield Farm to help the company upgrade its heating and air-conditioning system.

As taxpayer money went to his business, we can interpret literally a commentary written by Stonyfield Farm’s CEO Gary Hirshberg, “Let's Price Carbon Now, For Business' Sake.”

Since it’s an incremental step toward a national cap-and-trade plan, GE CEO Jeff Immelt is also a fan of RGGI. GE needs the federal action against fossil fuels to bail out the company’s investment in renewable energy and carbon dioxide capture technology.

A federal cap-and-trade plan would contribute to the creation of a carbon trading market that could approach $2 trillion in “value” – potentially bigger than the oil and natural gas futures markets. That’s why Wall Street loves the idea of a carbon trading market. Goldman Sachs and JPMorgan Chase, among others, need something to replace the revenue lost from trading mortgage securities. However, RGGI carbon auctions are proving to be risky. The prices for a ton of carbon dioxide fell to $1.86 a ton – the minimum price for an allowance – at this month’s auction. This is down significantly from its high of $3.51 a ton in March 2009.

Trading carbon dioxide allocations is dicey because, unlike other commodities, carbon dioxide does not have any intrinsic value in the marketplace. The value of carbon dioxide is subjected to a range of political and regulatory risk.

The sulfur dioxide trading market that was the model for the carbon market is collapsing because of a change in EPA regulations. Sulfur permits that once traded for $1,600 a ton are now trading for $130 a ton because of new regulations issued by the EPA. Experts believe the sulfur allowances will become worthless.

The RGGI experience to-date exposes cap-and-trade as another scheme to fill state budgets and give companies short-term profits from a government-induced green bubble.

The left’s goal to make fossil fuels more expensive continues despite the failure of RGGI and the likely failure Obama’s legislative push for cap-and-trade. Thirteen Western and Midwestern states have also agreed to RGGI-like regional cap-and-trade schemes.

Tea Party activists need to be on alert. The danger is not just in Washington – the progressive path to cap-and-trade is being driven by incremental steps taken by the states.