Have you heard of RGGI?

Issue Facts:

By: George Gantz

Global climate change is arguably the biggest and most difficult environmental challenge of the 21st century - the outcome may determine the ecology and climate of the Earth for millennia. The problem is big and the suggested solutions complex, potentially involving geo-political cooperation of unprecedented scale and technical/economic transformations affecting the way of life of every human being on the planet.  

On the other hand, there are those who dispute the science, or the accuracy of the climate predictions, or the root causes of observed climate change, or the need for immediate action, or the types of action needed, or whether any action will do any good …

Assuming there is a problem, how do you even begin to address it?  In New Hampshire, the approach is a four letter word - RGGI, the Regional Greenhouse Gas Initiative, the first cap-and-trade program for greenhouse gases in the U.S. RGGI (www.RGGI.org) is an agreement among 10 Northeastern and mid-Atlantic states to reduce global greenhouse gases. In New Hampshire, enabling legislation was passed in 2007.

The concept of “cap-and-trade” is simple:  The government creates a limited pool of carbon dioxide (CO2) emission allowances. Major emitters of greenhouse gases (i.e. the several substances that are responsible for global climate change, primarily carbon dioxide) must use the allowances to cover their emissions. Over time, the government reduces the quantity of those allowances which will drive up the price and force polluters to find efficient, low-cost ways of reducing carbon emissions.  The long-term goal - reduce greenhouse gas emissions significantly over time through measures that impose the lowest total cost on society.  

Most current cap-and-trade programs and proposals, including RGGI, require emitters to purchase a significant portion of their allowances through an auction, instead of having them issued pro-rata to existing emitters. Allowances can also be bought and sold on the secondary market, providing an opportunity for companies that efficiently reduce their emissions to sell excess allowances, potentially for a profit. Auctioning allowances provides revenues which can be used to jump-start the transition of our energy system by funding energy efficiency measures and clean energy development.

The money that the power companies pay for the allowances comes from increased electric rates to consumers (businesses and individuals). In the run-up to RGGI, studies indicated the rate increase over time would be in the range of 2%, or $2 per month on the bill for a typical residential customer using 500 KWH. Larger users will of course pay more.

Here’s how RGGI works in NH:

Over a 3 year period, 2009-2011, the five power producers in NH must purchase 1 allowance for every ton of CO2 that they emit so that in 2012 their allowances equal their emissions (with minor adjustments for offsets and set-asides ). These allowances can be purchased at quarterly auctions or on the secondary market via futures and options contracts or over the counter.

The quarterly auctions, held by RGGI, cover all 10 states and the proceeds are divided between them. As of October 2010 there have been 9 auctions with prices ranging from $2.05 to $3.51 per allowance and the price for future years as low as $1.86. Regional utilities and other bidders paid a total of $729 million with NH's share being $26.5 million.*

This money is deposited into the state’s Greenhouse Gas Emissions Reductions Fund, which is administered by the Public Utilities Commission (PUC). The state law requires that the fund support energy efficiency, conservation and demand response programs, and that at least 10 percent be used to assist low income residential customers to reduce total energy use.

Under New Hampshire law, money paid by consumers to fund RGGI is first used by the PUC to fund energy converting and renewable energy projects, as mentioned above. If a threshold is reached, additional funds are rebated to customers. The thresholds range from $51.7 million in 2009 to $129.3 million in 2015, after which there will be no rebates. Current prices are yielding revenues well below the threshold levels.

One of the goals of RGGI is to encourage the power plants to emit less CO2. Coal and oil burning plants (3 of the 5 plants in NH) have more of a challenge as these fuels emit more CO2  than natural gas (the other 2 plants). In addition to finding ways to clean up their CO2 emissions, plants can explore capture and sequestration which involves storing their CO2  (difficult to execute in the North East), and offsets, in which the plants invest in CO2 reducing or absorbing projects such as planting trees. Offset credits may be used in place of allowances to meet up to 3.3% of a plants CO2 emissions.

*2010 RGGI annual report to Legislature

July 6, 2011 update:

Governor Lynch vetoed SB 154 - a bill that originated as a reform of the Comprehensive Shoreland Protection Act but was later amended to include the repeal of RGGI. Click here to read Gov. Lynch's veto message.

HB519-FN also calls for the repeal of RGGI. The Senate passed (24-0) an amended version of the bill which supports repeal only if 2 or more New England states withdraw or agree to withdraw from the intiative. The bill died in conference committee.