Advertisement

SKIP ADVERTISEMENT

Regional Cap-and-Trade Effort Seeks Greater Impact by Cutting Carbon Allowances

Adjusting to shifts in the economy, states in the cap-and-trade system known as the Regional Greenhouse Gas Initiative have slashed the number of allowances that electric power companies can buy to offset their emissions.

The decision, made last week, was intended to shore up the pioneering program as it undergoes its first comprehensive review this year. While the program has been judged a success by most of the participating states, in the Northeast and Mid-Atlantic, an oversupply of the allowances — in essence, permits to pollute — has limited the program’s impact.

The program, the nation’s first cap-and-trade system, sets a ceiling on carbon dioxide emissions from electric power providers and requires the companies to pay for their heat-trapping emissions by buying the allowances in online auctions held four times a year. Companies that pollute less can benefit by selling off allowances to other companies.

Because of a switch to natural gas from coal by many utilities and a limping economy, however, both the demand for electricity and the plants’ emissions have been lower than expected since the program was first put into effect in 2009, with many of the allowances going unsold.

On Jan. 17, New York, Connecticut, Delaware, Massachusetts, Rhode Island and Vermont announced that they were permanently eliminating 72 percent of the unsold carbon allowances, or a total of 67 million. (Each allowance amounts to one ton of carbon dioxide emissions.) Maryland has also said it intends to retire some unsold allowances, raising the percentage of the unsold permits retired to 93 percent.

The reduction is widely viewed as a prelude to a major change expected by the end of the review period this summer: the potential tightening of emissions ceilings for electric power providers, which are currently set to reduce emissions by 10 percent by 2018. But emissions have already dropped by more than 30 percent below the cap.

“Lowering the number of allowances in the program sounds like the direction the states want to go in,” said Ashley Lawson, a senior analyst with Thomson Reuters Point Carbon, a carbon-market research firm.

Ms. Lawson said that while the regional initiative had so far proved itself as a working cap-and-trade model, the oversupply of allowances led to a lower price for them, easing the pressure on electricity providers to emit even less.

Since they began, the sales of carbon allowances have nonetheless produced almost $1 billion in revenue for the 10 original participating states.

Still, as political winds shifted nationally, with many Republican candidates denouncing cap-and-trade in the 2010 midterm elections, the program came under fire from critics who argued that the initiative imposed additional costs on electric utilities that were then passed on to consumers. Among them was Gov. Chris Christie of New Jersey, who pulled his state out of the program last year, and also contended that it did not reduce emissions.

Officials from supporting states vehemently countered that the benefits of the program far outweighed any costs, and an independent study released last November backed them up. The study, commissioned by four nonprofit foundations and conducted by the Boston consulting firm Analysis Group, concluded that the regional initiative had saved consumers money over all and created jobs. States have often used proceeds from the program to improve energy efficiency in offices and homes and to promote renewable energy installations, the report pointed out.

Although there were differences in how individual states applied the money — New York and Massachusetts heavily invested in energy efficiency programs, while New Jersey used most of the money to offset a shortfall in the state budget — carbon dioxide emissions in the initiative’s 10-state region were 6 percent lower than they would have been without the program, said Susan F. Tierney, one of the study’s authors.

As the program goes forward with 9 states instead of 10, some power companies say that the sweet spot will be lowering emissions without imposing too great a financial burden.

“My hope is that it will be strengthened because we need to address greenhouse gas emissions, but we need to do it in a responsible way so it doesn’t impact utility customers, especially in this economy,” said Bob Teetz, vice president of environmental services for National Grid, an electrical and gas company.

Some environmental groups are advocating changes that would broaden the program to include other industrial and commercial sources of greenhouse gas emissions and link it to similar programs in the works, like the cap-and-trade system being planned by California and some Canadian provinces.

A boost may come from the Environmental Protection Agency’s plans for new performance standards to limit greenhouse gas emissions from power plants. One way for states to comply with the new rules could be to join the initiative or a similar program authorized by the agency.

A version of this article appears in print on  , Section A, Page 22 of the New York edition with the headline: Regional Cap-and-Trade Effort Seeks Greater Impact by Cutting Carbon Allowances. Order Reprints | Today’s Paper | Subscribe

Advertisement

SKIP ADVERTISEMENT