How carbon trading is working out

Regional Cap and Trade: A Work in Progress

By TIM FAULKNER/ecoRI News staff

A new report is touting the Regional Greenhouse Gas Initiative (RGGI) for helping cut carbon dioxide emissions in the Northeast. The news is somewhat hazy for Rhode Island, however, and overall the data show that the cap-and-trade program is still a work in progress.

Environment Northeast (ENE), a nonprofit that tracks the 10-state, carbon-cutting RGGI program, said emissions from power plants are down 11 percent from last year, and are well below a cap set in 2009. The reason, ENE stated, is power plants are burning more natural gas and less high carbon-packed fuels such as coal and oil. Renewable energy, mild weather and improvements in energy efficiency also are being credited for helping reduce greenhouse-gas emissions.

Natural gas prices have dropped
significantly below coal and oil,
and are now about four times cheaper.

All good things for cutting carbon pollution, but much of the progress appears to derive from a single factor: the price of natural gas. Since 2005, natural gas prices have dropped significantly below coal and oil. As of Dec. 31, gas was about four times cheaper than oil.

As prices move, transmission companies within the New England power grid have the ability to ramp up or draw down electricity from individual power plants, and have been doing so to take advantage of low-cost natural gas. So, for example, as natural gas prices fall, coal power plants such as Brayton Point in Somerset, Mass., can simply scale back electric production, while Providence's gas-powered Manchester Street plant can ramp it up. 

More than 95 percent of electricity generated in Rhode Island comes from natural gas power plants — oil delivers less than 1 percent, zero for coal, and some 1.5 percent from renewable energy. Therefore the drop in natural gas prices has steadily increased local power generation to the point where Rhode Island's carbon emissions have spiked 37 percent above the state's emission cap level.

While Rhode Island has the lowest per capita energy consumption in the country and has been climbing the national energy-efficiency rankings, greenhouse-gas emissions from local power plants are up, way up — about 50 percent between 2005 and 2011. The state, however, isn't penalized for exceeding the emissions cap, as RGGI states are more than 30 percent below their combined cap.

ENE touts RGGI as the first and only successful carbon cap-and-trade program in the United States. Since it began in 2009, fossil-fuel utilities with capacity of 25 megawatts or more must buy allowances for every ton of carbon emitted. Regardless of whether emissions are above or below the cap, emitters have to pay. So far, $1.6 billion has gone back to the RGGI states, presumably for programs to help consumers cut energy usage and further curb greenhouse gases.

Rhode Island has so far received $11.6 million, all directed through National Grid to fund low- and no-interest energy-efficiency loans to residents and business and to fund energy-saving upgrades and weatherization. RGGI money also pays administrative costs at the Rhode Office of Energy Resources and Department of Environmental Management.

The improvements have added up to about 200,000 megawatts of current and anticipated energy savings across Rhode Island. The programs have helped some 22,000 participants save energy and money through energy audits and upgrades, or by simply cutting the cost of products such as energy-efficient light bulbs.

An independent analysis concluded that RGGI has or will create $1.6 billion in econmic value and 16,000 jobs across the region. The reduced emissions and a general lull in demand for electricity also has meant no new dirty power plants are being built, while new solar, wind, geothermal and other renewable energy projects are slowly working their way into the power grid.

Still, in these first years, RGGI works more like a tax on utilities than a system with concrete incentives to cut emissions. A big concern is that the initial cap on emissions was set too high, so power plants have little reason to make substantial improvements in emissions reductions or to start building renewable energy projects to replace high-carbon plants. The revenue heading back to states also is declining because the carbon allowances bought by power companies are declining in value. Allowances are purchased through quarterly auctions and, as emissions drop, so has the need for more allowances. As a traded commodity, the allowances have fallen so much in value that they currently sit at an artificial floor price set when RGGI began.

RGGI member states are expected to work on lowering the emissions cap at a meeting some time this year. But there could be delays, especially during an election year. RGGI has been a politically radioactive in some states. New Jersey Gov. Chris Christie wants to drop out, while the New Jersey Legislature supports the program. New Hampshire politician also are having doubts. However, most RGGI states support the effort, as has Gov. Lincoln Chafee — although Chafee has been mostly quiet regarding any environmental initiatives since he took office last January.

Nevertheless, utilities are not actively lobbying Congress to drop out of the program, according to Peter Shattuck, a policy analyst with ENE. "The fact that you haven't heard any public opposition to RRGI from the energy companies speaks volumes," he said.

Power companies, he added, realize that cutting carbon emissions is unavoidable. RGGI, despite its flaws, is a major positive for the environment, Shattuck said. "It lets energy companies know that carbon emissions aren't going to go unchecked anymore."