But low level may hurt cap and trade program
The Boston Globe
March 11, 2009
By Beth Daley, Staff Writer
New figures being released today show the recession helped drive down global warming emissions from Northeast power plants last year to their lowest levels in at least nine years.
Northeast power plant emissions dropped about 9 percent last year from 2007, according to preliminary projections by Point Carbon, a consulting and research firm. The Norway-based company attributed the drop to the economic slowdown, combined with the fact that power plants are burning cleaner natural gas.
The drop in emissions may be good for the environment, but was not seen as reason for celebration. "What does this say about the state of the economy?" said Robert Rio, senior vice president of Associated Industries of Massachusetts "We could get 100 percent below the cap if we shut every business and moved them out of state."
The reduction in emissions came with another drawback: It has the unintended effect of delaying a longer-term and potentially more important effort to reduce greenhouse gases over the next decade.
The program, designed by 10 Northeast and Mid-Atlantic states and called the Regional Greenhouse Gas Initiative, or ReGGI, is a model for national legislation being drafted in Washington.
The initiative sets a cap on carbon emissions that is designed to slowly fall over time.
The complex arrangement, called a "cap and trade" plan, works like this: Power plants obtain emission allowances from states for every ton of carbon dioxide they emit, with plants that emit larger amounts having to obtain more allowances than cleaner ones. As the cap is reduced, there are fewer available allowances, pushing the price up and thus encouraging the dirtiest power plants to instead invest in cleaner technologies. Over time, cleaner power plants will then out-compete dirtier ones.
But with emissions now about 17 percent below the cap, allowances are not in particular demand, so market forces are not kicking in. Emission allowances are not expected to get high enough anytime soon to spark investment in clean energy.
The initiative "was designed to lower emissions below business as usual, but business as usual has changed," said Alden Meyer, director of strategy and policy for the Union of Concerned Scientists, a Cambridge-based research and advocacy group.
"The lesson is you have to have a system you can adjust as circumstances change," Meyer said. "The urgency of the science shows . . . we need to be ambitious."
That lesson is an important one for the Obama administration as it crafts its own "cap and trade" program designed to reduce the nation's greenhouse gas emissions. If the cap is set too high, little happens.
But even with that shortcoming, the architects of the regional initiative win praise from energy analysts and environmentalists for developing the only mandatory cap and trade carbon market in the United States.
Businesses have been reluctant to embrace a cap-and-trade system, however, saying it will increase energy costs and make them less competitive.
The program has already raised more than $145 million from auctioning emission allowances, according to Worcester-based World Energy, which runs the auction. Another auction is scheduled next week. In Massachusetts, much of its $28 million share is going into energy efficiency.
"ReGGI is path-breaking," said Robert Stavins, director of Harvard University's environmental economics program and a specialist in cap-and-trade programs. He said it showed "you can have an auction and it can work."
Still, Stavins says that the initiative is narrow in scope and that any national cap-and-trade program should regulate emissions at major sources of emissions, such as at coal mines, to minimize the number of entities subject to regulation.
President Obama's budget plan assumes there will be about $79 billion in revenue in 2012 from the sale of greenhouse gas permits under a cap-and-trade program. Both Senate majority leader Harry Reid of Nevada and House Speaker Nancy Pelosi of California have said they want to pass climate change legislation this year.
Yesterday, the US Environmental Protection Agency proposed establishing a national system for reporting greenhouse gas emissions that could help establish a national cap-and-trade program. Meanwhile, US Representative Edward J. Markey of Malden, who chairs key energy and global warming panels, is writing a global warming and energy bill that includes emissions trading.
Markey said that a cap and trade mechanism like that in the ReGGI initiative is "a system we think makes sense." He added: "If the price is correct, then innovation will flourish. If it is wrong then the status quo will remain."
The initiative's cap was initially criticized as not sufficiently ambitious. But even so, projections showed power plants were expected to hit the cap in 2009.
But in 2006, emissions unexpectedly dropped. Many power plants in the Northeast can burn oil or gas, so when natural gas prices fell and oil prices skyrocketed, those plants began burning gas, which emits less global warming pollution than oil. Cool summers and warmer winters also contributed to reduced energy use. Power plant emission reductions could also lead to health benefits as fewer ingredients of smog are released.
Then late last year, the economic downturn hit in force, reducing energy consumption by businesses. If the economy does not pick up, emissions could continue to drop, energy analysts say.
There is little ability for states that are part of the initiative to tweak the cap number until 2012, when the program will undergo a review.
Veronique Bugnion, Point Carbon's managing director of Trading Analytics and Research, said that "it's too early to call things on ReGGI" but said that its small scope makes it especially susceptible to weather or energy use fluctuations.
Still, ReGGI's architects say they are proud of the program.
"The most amazing thing about a dancing bear is not if it juggles while dancing but that it dances at all," said Seth Kaplan, of the advocacy group Conservation Law Foundation. "It's a process of learning how to do these things. And ReGGI is showing us it works."