RGGI: Mandatory scheme makes modest gains in northeast

By Hal Weitzman

Published: December 13 2009 23:12 | Last updated: December 13 2009 23:12

For much of this year, the US Congress has grappled with the thorny issue of a national cap-and-trade regime for greenhouse gas emissions.

The issue has been controversial. The House of Representatives passed a bill in June and the Obama administration was unable to push the Senate to fulfil its wish of having federal legislation in place by the time of the United Nations Climate Change conference in Copenhagen.

The Senate is unlikely to make significant progress on the issue this year, and getting any legislation passed looks like being an uphill struggle, with opposition from those who say cap-and-trade would lead to job losses in the industrial heartland and a loss of competitiveness.

Yet at the same time, one-fifth of the country’s states are already signed up to a mandatory carbon pollution regime. The Regional Greenhouse Gas Initiative – RGGI, or “Reggie” – unites 10 north-eastern US states in a plan to cut carbon emissions from power plants by 10 per cent by 2018.

RGGI was born of a desire by local leaders to act on greenhouse gas emissions at a time when the administration of George W Bush was failing to tackle the issue. “There was a lot of frustration that President Bush broke his promise to support federal legislation,” says David Littell, commissioner of Maine’s Department of Environmental Protection

George Pataki, the former governor of New York, was a prime force behind the new initiative. In 2003, he wrote to fellow governors asking them for help “to develop a strategy that will help the region lead the nation in the effort to fight global climate change”.

By 2005, Delaware, New Jersey, Connecticut, Vermont, New Hampshire and Maine joined New York in signing a memorandum of understanding committing themselves to an emissions reduction programme.

Massachusetts and Rhode Island, which decided at the last minute not to sign the memorandum over concerns about the lack of an opt-out linked to energy prices, both later opted to sign up in 2007, and were followed by Maryland. New Hampshire joined in 2008.

Although there are a number of regional non-mandatory carbon emissions programmes in the US, RGGI is the only mandatory programme, and also the most developed. As Washington has debated the subject, it has often looked to RGGI as the closest US model for its legislation. The programme’s backers say it has always been intended to be a path to a federal regime.

Starting in September last year, RGGI has held quarterly carbon dioxide allowance auctions at which power companies buy emissions permits by the tonne. By the end of a three-year compliance period – the first of which began at the start of this year – they are obligated to accumulate enough credits to cover their emissions.

The bill passed in the House of Representatives proposes to give away 85 per cent of carbon permits for nothing, mostly to electricity and natural-gas companies and manufacturers – a measure supporters say was necessary to secure the votes needed to pass the legislation.

By contrast, RGGI auctions all its allowances, a process that has raised $432m so far. That money is then distributed to member states, which invest them in energy efficiency and renewable energy projects.

Although RGGI has been warmly welcomed by cap-and-trade advocates, some observers note that since the regime set its emissions caps based on average annual emissions between 2002 and 2004, they were not aggressive enough. In the years since, emissions have fallen, in part because power companies have switched from coal-fired generation to less dirty natural gas. More recently, the economic downturn has resulted in big cuts in carbon emissions.

RGGI is also less ambitious than the climate bill that passed the House of Representatives, which envisages a 17 per cent reduction in emissions by 2020 as opposed to RGGI’s 10 per cent reduction by 2018. RGGI applies only to electric power generators bigger than 25 megawatts, while the House legislation would affect industries such as coal, oil, iron, steel, cement and paper.

“This was not as ambitious a programme as some others,” says Judi Greenwald, vice-president at the Pew Center on Global Climate Change. “But they are achieving modest reductions at modest prices. So from an economic and environmental point of view, it’s been a success.”

Mr Littell notes that the participating states will reassess the cap after three years. “We’ll look at it then,” he says. “We’re not necessarily committed to keeping the level exactly where it is until 2019.”

Ms Greenwald notes that RGGI has also played an important role in the political debate. “As much as we look at the European model, for a lot of US policymakers it’s really important to have something here,” she says. “The fact that it’s working, that they’re getting reductions and that it’s well-functioning market is very important from a US policy perspective.”

Should Congress ultimately fail to pass federal legislation, many expect that more US regions will follow RGGI in implementing mandatory emissions regimes, a prospect that worries some industrial companies concerned about the cost of complying with multiple regimes.

“A number of states and regions are holding back to see if a federal programme can be enacted,” says Peter Molinaro, head of government affairs at Dow Chemical, the largest US chemicals group. “If not, you’ll begin to see more agitation at the state level – history shows that in the absence of federal action, the states are the ones who do the work.”