Blog Post Based on Battle Lines in US Test Case for CO2 Controls by Ed Crooks, published in the Financial Times on August 22nd, 2011 and on New Jersey Quits RGGI, Bans Coal Plants (http://www.environmentalleader.com/2011/05/27/new-jersey-pulls-out-of-rggi-bans-coal-plants).
A recent article in the Financial Times brought back an interesting and important question: whether the fragile US economy can cope with tougher environmental regulation. This issue rose up because the only current working cap and trade scheme for carbon emission in the United States may set tighter limits on emissions in the next year.
The Regional Greenhouse Gas Initiative
Some of you might not know what is the Regional Greenhouse Gas Initiative (RGGI). The RGGI is the first market based carbon emission trading platform in the United States. It was formed in 2003 and includes ten Northeastern states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. The objective of the RGGI is to reduce carbon emission from the power sector by 10% by 2018 (www.rggi.org). The permits were emitted in the fall of 2008 and the first three years of compliance began in January 2009. Electricity generators can buy the permits at quarterly auctions and can be traded. The profits from the sale of the permits are used to promote renewable energy and energy conservation. This means that electricity generators need to buy carbon emission permits in order to have the “right to pollute”. The cap limits the total amount of emissions that the power plants can produce in aggregate. By restraining the cap it is possible to cut down the total carbon emitted over the years.
Critics of the RGGI
Last May, the Governor of the State of New Jersey announced that his state would leave the RGGI at the end of the year. The main reason for New Jersey to leave the scheme was the inefficiency of the plan to reduce carbon emissions effectively. According to Governor Christie, the emissions aren’t currently expensive enough to change industry behavior. This same conclusion is also highlighted in the article in the Financial Times. The recession led to a reduction in the price of natural gas, a cleaner energy source, which is now used as a substitute for coal and oil. The recession also caused a lower demand for energy. This resulted in a lower amount of carbon emitted which means that the demand for permits is really low, which leads to lower permit prices, resulting in making the scheme not as effective as it was planned. In order to gain efficiency, the cap would need to be reduced to be a bigger constraint, unfortunately, some people believe that this could hurt investment and employment in the states included in the RGGI by driving up energy cost. Can the fragile economic recovery survive with harder environmental regulation? Chris Christie also fears that this could open the door to a certain competitive advantage for the states that are not included in the RGGI. According to Christie, plants in neighboring states could drive out of business cleaner plants from New Jersey. This could end up defeating the purpose of the RGGI if the first place.
It is hard to know what is the right thing to do in this situation. The RGGI wants to encourage cleaner energy production and a reduction of carbon emissions now rather than pay for depollution later on. But it could also hurt the fragile economy of the participating states and give an unfair advantage to bigger polluters in other states that can produce dirtier energy at a cheaper price. What are your thoughts on it? Do you think the RGGI would be more effective in a healthy economic environment?