As discussed below, 9 northeastern states are getting ready to sign a pact to cap and trade electric utility greenhouse gas emissions. Under what conditions would this pact accelerate the timing and increase the probability that the nation's electric utilities adopts a credible cap and trade CO2 policy?
1. Is this a demonstration project to show that the extra costs of meeting this new regulation (measured in higher electricity prices and lower electric utility profits) are not that high?
2. Will this accelerate the development and diffusion of new "green" technologies?
3. In aggregate,how much will this regional trading reduce national greenhouse gas production by?
4. What are the unintended consequences of having only one region engage in this policy? Could there be border effects where new electric utilities will locate on the border of Red states outside of the 9 state pact and use "shipping" technology to send the electricity back to the blue states? This could create Domestic Pollution Havens. Could this pact make the Northeast even less competitive in attracting jobs that are energy intensive? (this hinges on the expected future relative price dynamics of electricity in these blue states relative to red states).
November 29, 2005
Fears of Energy Price Increase Delay 9-State Pollution Pact
By ANTHONY DePALMA
With delegates from all over the world meeting in Montreal on an international treaty to cut greenhouse gases, negotiations for a separate pact among nine Northeastern states have been prolonged by worries that controls on emissions could drive up the price of energy.
The nine states had planned to announce a final agreement on the plan this week, coinciding with the meeting in Montreal.
But Gov. Mitt Romney of Massachusetts, one of the nine states, has pushed the discussions past that deadline. He said he was concerned that the plan to cap carbon dioxide emissions from power plants in the region, and then reduce them by 10 percent, would raise the cost of electricity too much and hurt businesses and customers.
Governor Romney said that he supported some of the plan's provisions, and that he was committed to reducing the state's reliance on foreign oil. But he insisted that the plan have price controls on what power plant operators would pay to exceed their pollution allowances under the agreement, called the Regional Greenhouse Gas Initiative, to check rapidly rising energy costs.
"We're seeing huge rate increases now in the cost of energy," Governor Romney said in a telephone interview yesterday. "To add to that burden for the purposes of symbolism is something our business community is not about to undertake."
This would be the first such cooperative action by the states in the nation, but its impact on climate change would be limited. It would, however, represent a significant challenge to the Bush administration, which does not support the international treaty to control greenhouse gases, and it would increase pressure for a national emissions reduction program.
Rhode Island is prepared to follow the lead of Massachusetts in demanding price caps, said Jeff Neal, a spokesman for Gov. Donald L. Carcieri.
New York, which initiated the regional plan, and New Jersey oppose setting caps on prices for pollution allowances. They argue that caps are not needed to protect customers and can dampen incentives to develop cleaner alternatives. The other states in the pact - Connecticut, Delaware, New Hampshire, Maine and Vermont - have indicated that they are willing to go ahead without a price cap.
The delegates meeting in Montreal this week are assessing the progress of attempts to reduce greenhouse gases since the treaty took effect in February, and are considering further reductions.
"This would be a terrible moment for this agreement to fall apart," said Seth Kaplan, senior lawyer for the Conservation Law Foundation of Boston. He has been involved in the regional negotiations since Gov. George E. Pataki of New York began the initiative more than two and a half years ago.
Under the regional pact, a market-driven system would be created to control emissions of carbon dioxide, the main greenhouse gas, from more than 600 electric generators in the nine states.
Each state would have its own emissions cap, and power plant operators would each be permitted to emit carbon dioxide up to a certain level. The operators would be encouraged to use the cleanest plants in order to stay under the limits, and would be free to trade excess allowances. About 25 percent of the pollution allowances would be sold or auctioned to plant operators who exceed the caps.
The states have just completed a new study that found that if money raised by the sale of pollution allowances were used to pay for aggressive energy efficiency programs, the average annual household bill would actually fall by more than $100.
Governor Romney said he had not seen the new study.
Besides a cap on the price companies would have to pay for extra pollution allowances, the governor said he had other objections to the plan. He said Massachusetts' allotment of the regional emissions total was too small, and that 25 percent was too high a percentage of pollution allowances to be sold.