Nine Northeastern states will drastically cut the region's carbon cap under proposed changes to its cap-and-trade program, they announced Thursday (February 7).
The states, organized in the Regional Greenhouse Gas Initiative (RGGI), said power plants in 2014 could emit no more than 91 million tons of greenhouse gas, a reduction of 45 percent. After that, the limit will fall another 2.5 percent each year until 2020.
Following a two-year review, it is one of several changes to the five-year-old pact, under which utilities bid at auction for permission to spew carbon into the air. Auction revenue is meant to fund projects that help states reach carbon reduction goals.
The changes brought cheers from environmental groups, who say they will lead to cleaner air, while helping to fight climate change.
“As the EPA prepares to issue carbon pollution standards for existing power plants nationwide, other states would be wise to look to RGGI as a model,” Dale Bryk, an attorney for the National Resources Defense Council, said in a release.
Last November, RGGI Inc., the nonprofit that organizes the pact, released a report saying the program had led $617 million to be invested in energy efficiency, spurring growth in the renewable energy sector.
But Republicans in some states — particularly Maine and New Hampshire where there have been failed attempts to exit the pact — describe it as a “backdoor tax increase” on consumers, arguing that utility companies simply pass the auction costs on to electric ratepayers.
The pact increased consumer electricity rates about 0.7 percent between 2009 and 2011, according to a study released in November by Analysis Group. But the study also said that increased efficiency because of the pact is expected to drive down rates over time.
Prices for carbon-use permits have dwindled to rock bottom levels, falling from $3.07 per ton in September 2008 to $1.93 most recently, meaning that auction revenues have plummeted, too. Critics say the prices are evidence that the program isn't working, insisting they have been too low to change industry's behavior.
In the latest auction, just over half of the available allowances were sold.
But emissions in the New England Region are falling, too — far below the previous cap. Cap-and-trade advocates have latched on to that as evidence the pact is working. Experts say RGGI likely played a role in those falling emissions, but it's hard to measure its impact amid other market forces. The recession, for instance, drove down demand for energy, lowering emissions. Also, many people have switched to cheaper natural gas, which emits less carbon and is more plentiful.
The new cap likely rankles some utilities. It will bring carbon allowances to about $4 per ton next year, and up to $10 in 2020. That will incentivize them to become more efficient, the pact's advocates say. RGGI estimates the auctions will generate some $2.2 billion state energy investments.
It is now up to each state to formally okay the new provisions. Seven can do so without the legislature's approval, though lawmakers will likely have to sign off on any changes to how revenue is distributed.
In Maine, Governor Paul LePage, a Republican who has been hostile to the pact, saying it raises utility rates, said Thursday he will propose legislation directing auction proceeds to rate relief for families and businesses.
In New York, Governor Andrew Cuomo, a Democrat, who had loudly called for the cap to be lowered, says revenue will help inefficient power plants invest in emission-cutting technology, and it will aid communities that will be hurt when coal plants retire. The state will also invest in strengthening coastal infrastructure shown to be vulnerable during Hurricane Sandy.