Cracks in cap and trade

the same carbon tax concerns that have stymied climate change legislation in Washington are now starting to gain some traction in the Northeast.

Chris Christie, the Republican governor of New Jersey, says he plans to pull his state out of the Regional Green­house Gas Initiative by the end of this year. The Republican-controlled House in New Hampshire, led by conservative Speaker William O’Brien, voted in February to withdraw from the 10-state compact. Republicans in a handful of other northeastern states are pushing their own withdrawal bills.

Steve Lonegan, who heads the New Jersey chapter of the Americans for Prosperity Foundation, a group founded by conservative businessmen David and Charles Koch, says economic concerns are fanning opposition to the regional compact. He says the initiative was designed as a template for a country-wide cap and trade system, but now that the national legislation isn’t going anywhere he thinks the regional system should be scrapped as well. “If not,” he says, “the long-term steady, slow pressure of pushing rates up will damage the economies of these states.”

The Regional Greenhouse Gas Initiative was launched in 2009 and requires electricity generators in the region to buy allowances for each ton of carbon they emit. The sluggish economy has dampened demand for electricity, so the regional cap of 188 million tons of CO2 hasn’t been too painful yet, but the cap is supposed to start ratcheting down 2.5 percent a year starting in 2015.

The carbon allowances are sold at auction and the $789 million raised so far flows to member states, with a requirement that at least 25 percent of the money go for “consumer benefit.” Studies indicate just over half of the carbon tax money has been funneled to energy efficiency projects, with another 12 percent going for renewable energy development and technologies to reduce carbon emissions.

Environmental groups say this “cap and invest” approach pays dividends for the environment and consumers. Environment Northeast, a regional group supporting cap and trade, says investing money from the sale of carbon allowances in energy efficiency programs saves consumers money, puts downward pressure on electricity prices, and reduces overall demand for electricity and the need for new power plants. The environmental group says the economic payback for Massa­chusetts consumers is almost $3 for every $1 invested in energy efficiency.

Cap and trade opponents dismiss the benefits and worry about the cost. Power generators roll the cost of the carbon allowances into the electricity prices they charge their customers. The impact on utility bills varies by state, but officials at the Regional Greenhouse Gas Initiative say it ranges, on average, from a low of 28 cents a month in New Jersey to a high of 68 cents in Connecticut. The impact in Massachusetts is estimated at 57 cents a month.

Calling the cap and trade system a backdoor tax increase, the New Hampshire House voted 246-104 to pull the state out of the program. But the Senate in May voted 16-8 to continue the state’s participation with new restrictions on how the proceeds are spent. At press time, the two branches were working to resolve their differences, with Gov. John Lynch threatening to veto any move to pull the state out of the regional compact.

Christie says he believes climate change is real, but he calls the regional cap and trade program a failure in addressing it. He says carbon allowances are selling for $2 a ton and would need to rise to $20 to $30 a ton to force utilities to start shifting to cleaner energy sources. Yet he clearly doesn’t want to see that happen, calling the cap and trade program a “tax on electricity” that can hurt businesses in New Jersey. Ocean Spray Cranberries Inc. recently announced it was relocating a New Jersey processing plant to Pennsylvania in part because of high energy costs in the Garden State.

Ironically, New Hampshire and New Jersey, the two states where opposition to cap and trade is the strongest, have treated a portion of their carbon allowances as taxes. While most states participating in the initiative have used nearly all of their allowances for energy efficiency projects, New Hamp­shire and New Jersey both used a portion of their funds to balance their budgets. New Hamp­shire diverted $3.1 million, or 11 percent of its allowances, while New Jersey tapped $65 million, or 44 percent of its total. New York used $90 million of its carbon allowances to plug budget gaps.