Grass is greener

A federal climate change law would likely pre-empt state rules, worrying Massachusetts officials and environmentalists

like the health care bill before it, the fate of a new federal climate change law rests with the Senate. John Kerry is navigating a political minefield, with Republicans uniformly opposed to any effort to restrict carbon emissions and coal-state Democrats wary of moving legislation that could hurt businesses at home in an election year.

As with health care, the House has already acted. It passed a bill last year sponsored by another member of the Bay State delegation, Rep. Edward Markey of Malden, that would establish the first federal cap-and-trade program, capping the level of greenhouse gas emissions at 17 percent below current levels by 2020 and 83 percent below current levels by 2050, while requiring businesses to pay for the right to pollute. Utilities would also have to supply more of their power from renewable sources.

Kerry’s approach is different. His bill would first subject electric utilities to a cap-and-trade program and then tackle other industries in future years. It would also seek to revive nuclear power and increase research into clean coal technologies. It’s going to be a tough sell, as evidenced by the defection of Kerry’s lone Republican partner in the Senate, South Carolina’s Lindsey Graham, back in April.

But for Massachusetts, which in 2009 began implementing a regional initiative to cap greenhouse gas emissions and has long maintained tough vehicle emissions standards, a new federal program of either variety could be a very good thing. It could protect Massachusetts from regulatory arbitrage by businesses trying to escape state rules, and it could open up new opportunities for the state to win additional federal funding.

It would also make clear how big the regulatory window is for future state action. That is now up in the air, since a new federal law would likely pre-empt at least some state authority. And just how far a federal law would go in that direction is the biggest risk, so far as Massachusetts policymakers and environmentalists are concerned, since it could mean reduced revenues from the state’s regional greenhouse gas initiative and less authority to pursue future regulation.

Markey and Kerry prefer to look at the best possible scenario. Kerry, for example, argues that the green jobs that a federal law will create
will benefit states, like Massachusetts, that have strong research sectors. “This energy transformation is huge for our economic future in Massachusetts,” he says. “The jobs this bill creates, the investments we have in research and development, our investment in clean energy production —all these things will be a huge economic boon to the state.”

Markey argues that the state will benefit from a national cap-and-trade program because it would broaden Massachusetts’s existing program, which covers only electric utilities. “With a national system that is more comprehensive, there will be a larger pool of revenues from polluters to use for clean energy programs,” he says.

But there are also powerful interests pushing back against Massachusetts’s best-case scenario. The businesses willing to go along with federal legislation insist that any federal law pre-empt state authority over emissions so that businesses have one clear standard to adhere to, rather than a patchwork of state rules. In their view, a federal law should replace regional cap-and-trade programs (like the Regional Greenhouse Gas Initia­tive of which Massachusetts is part), set a national vehicle emissions standard, and even restrict states’ ability to set permitting rules for power plants or set standards governing the type of fuels used within their borders.

Though Markey’s bill would not go nearly that far, it would place a five-year moratorium on the RGGI and any other state or regional programs. After that, states could revive their programs if they believed the federal law was providing insufficient environmental protection. But the provision has environmentalists worried that it could stall state innovation. In passing a federal law, “you’re essentially making a bargain, trading away the ability for states to regulate in exchange for federal regulation,” says Seth Kaplan, vice president for climate advocacy at the Con­servation Law Foundation, a Boston–based environmentalist group. In that scenario, Kaplan adds, “If you are trading that for federal regulation that doesn’t go far enough, that’s what is known as a bad deal.”

That’s not to say that activists like Kaplan believe the states can go it alone. Climate change is a worldwide problem, and regional and state efforts alone won’t solve it. The regional program in Massachusetts, they admit, hasn’t forced industry or consumers to feel much pain. With a generous carbon cap of 188 million tons of carbon dioxide emissions, covering only electric utilities, everyone agrees that the program is a modest one.

That modest scale has ensured that the program hasn’t stirred up much opposition, even on the part of the utilities —who paid just $2.91 per ton of emissions in 2009—or consumers, who faced a less than 1 percent increase in their electricity bills as a result of the initiative, according to a February report by the group Environment North­east. But such a generous cap has also limited the RGGI’s environmental impact.

Environmentalists like Kaplan say participating states were too cautious in setting the cap, assuming that electric sector emissions would grow at approximately 1 percent annually, as they usually had in the past. In reality, emissions slowed considerably last year, the result of the weak economy and plummeting natural gas prices. Those low prices prompted more use of natural gas, which is a lower-emitting fuel than oil or coal. As a result, Environ­ment Northeast found that emissions in the region fell approximately 25 percent to 30 percent below the RGGI cap in 2009.

Even so, environmentalists believe that federal regulation will work best in combination with state efforts, with the states driving the federal government to adopt more ambitious requirements as the states succeed with them. In essence, they want the federal government to set a minimum standard that states could exceed, which is a deal-breaker for industry advocates.

state leaders take pride in what they have achieved and are reluctant to cede too much authority. Last year, even given their modest ambitions, the RGGI member states —Massachusetts, along with Connecticut, Delaware, Maine, Maryland, New Hampshire, New Jersey, New York, Rhode Island, and Vermont—became the first places in the nation to put a price on carbon emissions, auction off licenses to pollute, and reduce emissions. “We’ve shown that you can have a carbon market and auctions that work,” says Laurie Burt, commissioner of the Massa­chu­setts Department of Environmental Protection.

And for all their criticisms of the program’s limited scope, environmentalists say that the RGGI has had an impact, both in modestly reducing emissions and in discouraging the development of new coal-fired power plants.

“It’s a good demonstration program, and I think they did what they set out to do,” says Judi Greenwald, vice president of innovative solutions at the Pew Center on Global Climate Change in Arlington, Virginia. By proving that it’s possible, Greenwald says, Massachusetts has emboldened states in the Midwest and West to go farther. Multistate efforts in each of those regions are still in the design stage, but they are likely to be more ambitious, encompassing all industries (not just utilities) and setting a tighter emissions cap.

Absent any federal interference, RGGI member states may also up the ante beyond the 10 percent reduction in power sector emissions that the group originally set as its goal for 2018. A review process is built into the initiative in 2012, and Burt expects some mid-course corrections at that time—possibly even an expansion of the cap and trade system to cover the transportation sector. Environ­mentalists are hopeful that the participating states will also eliminate pollution permits that do not sell for a minimum price, thereby making those that remain more expensive.

Already, Massachusetts is pushing the envelope further than its fellow RGGI states. A 2008 state law requires greenhouse gas emissions to fall by at least 10 percent by 2020, and a report issued by Gov. Deval Patrick’s administration earlier this year indicates the state is on target for a nearly 19 percent drop without any change in existing policies. Patrick’s secretary of energy and environmental affairs, Ian Bowles—a former president of MassINC, the think tank that publishes CommonWealth—can raise the target to as high as 25 percent by year’s end.
Massachusetts is already pushing the envelope
Burt says state leaders don’t want to rest on their laurels. They are working this year on developing a plan for a state low carbon fuel standard. It could require that gasoline distributors bring in alternative fuels with lower carbon footprints than gasoline, such as corn or sugarcane ethanol, to replace oil. Any federal requirement that got in the way of such “state complementary programs” would be a bad thing, she says.

With that, environmentalists wholeheartedly agree. “Anyone who looks at climate science with any degree of rigor can see that the gap between what science tells us we need to do and what is politically possible in Washington is a chasm,” says Kaplan of the Conservation Law Foun­da­tion. What’s needed, he says, “is federal greenhouse gas regulation that has the maximum effect it can and doesn’t eliminate the states’ ability to regulate.”

But all that could be thrown into turmoil if federal legislation were to pre-empt state authority over greenhouse gas emissions. And Massachusetts businesses worry that the state could also lose control over the $100 million it took in last year selling pollution permits. The state has worked with industry groups to ensure those funds have gone into energy efficiency and green jobs programs and not into the general fund, assuaging business’s concerns about the regional program.

By contrast, “in a national program, if we start sending money to the federal govern­ment, we need to make sure we get money back and that it’s not just going into the federal coffers,” according to Robert A. Rio, senior vice president of the Associated Industries of Massachusetts, a business trade group.

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Markey and Kerry say such speculation is ill-founded and that they will fight hard to ensure their bill protects the state’s interests. Markey argues that under the bill the House passed last year Massachusetts would be well positioned to pick up as much as $200 million in additional funds, with half going to replace the RGGI funds and another $100 million in federal research money that would be awarded to eight “clean energy innovation centers” selected on a competitive basis.

Kerry feels the same. “I know we can do it in a way that rewards what Massachusetts has already done,” he says. But at the same time, Kerry says it’s important to keep an eye on the ultimate goal of combating global warming. “It’s impossible for states to go it alone in the long run, given the ultimate goal of a cleaner environment,” he adds. “We need a national pollution reduction, carbon reduction mandate that brings the rest of the country up to New England’s high standards.”