Going Once, Going Twice…

The Regional Greenhouse Gas Initiative (RGGI) is bound to fail, and that’s alright.

America’s first formal crack at regulating industrial greenhouse gas emissions kicked off last week with a much-ballyhooed carbon auction that should prove to be a landmark moment in the fight against climate change. Ok, so it’s not a national program—only ten states are participating—and even its biggest boosters hesitate to say it’ll, you know, actually reduce carbon emissions. But that’s alright. This doomed-to-failure program (or, at least, doomed-to-very modest success) will prove invaluable, mostly for the lessons learned from what goes wrong.

Fed up by a lack of leadership on the national level, the Regional Greenhouse Gas Initiative (RGGI, or “reggie”) is an effort launched by a consortium of northeastern states—all of New England, plus New York, New Jersey, Maryland and Delaware—to create a “cap and trade” program to limit emissions of carbon dioxide, global warming’s main culprit.

It’s based on the lauded “purchase-credit-to-pollute” models of the 1990s that proved effective in reducing acid rain, and works something like this: The RGGI states have set a cap at 188 million tons of CO2 for 233 fossil fuel-burning power plants throughout the region. In last Thursday’s auction, about 12.5 million “allowances” (each good for a ton of carbon) were sold off. Each plant’s carbon output has been measured and an individual cap is set proportionally. If they emit more pollution than their cap, they need to buy up enough allowances to cover the overage. If they emit less, they can sell off their extra allowances.

The problem, though, is that the 188 million ton initial cap set by RGGI was set back in 2004, using historical data from the years before (and, not surprisingly, was inflated more than a little bit for political purposes). Since then, the states’ emissions have actually gone down. In 2006, the utilities collectively pumped out a “mere” 164.5 million tons, the reduction being attributed to a slower economy, to utilities shifting to lower-carbon fuels like natural gas, and—irony alert!—to warmer winters.

So until the “caps” are actually reached by utility emissions, there’s no real incentive to buy the allowances. Still, despite fears before the auction that millions would go unsold, all 12.5 million allowances were snapped up—mostly by utilities, but some by finance types and environmental orgs—for a flat rate of $3.07 each, raising over $38 million that the states have all committed to investing directly in energy efficiency and clean energy projects. The focus on residential household efficiency helps on the PR front, as the average consumer should ultimately see their utility bill go down, despite slightly higher electricity costs. (For the same amount of juice, the average New Yorker would see about a $0.78 increase on their monthly bill, an amount easily wiped out by modest efficiency upgrades promised by the program.)

Critics argue that the cap is too high and, as a result, the per ton price is far too low. To be sure, RGGI was built to wade into this experiment cautiously, with a deliberate effort not to cause a spike in consumers’ energy rates. The auction format also preempts some of the early problems witnessed in a similar European model launched three years back when permits were overvalued and given away to utilities in what seemed to observers to be an industry windfall. There, carbon prices soon tumbled and the program struggled to come to age as a sort of international joke. (The markets have since more than recovered, and a ton of carbon is traded in Europe for about 12-times the price of this initial RGGI batch.)

Critics also point out that northeastern utilities are still a small slice of the national emission pie. This is certainly true, but RGGI should provide a blueprint that’s scalable both regionally and across sectors. California, in fact, has lead the charge to gather six western states and four Canadian provinces into a Western Climate Initiative that’ll operate economy-wide, across all industries.

In reality, RGGI’s greatest achievement may have already occurred—getting policy and industry leaders to sign on to the program. To prove that the sky won’t fall on the consumer as the cap is enforced is the next step.

Facing the unfortunate reality that a clean and simple carbon tax is political kryptonite in this day and age, a well-functioning cap and trade program seems the most likely hope to start plugging our national carbon smokestack. RGGI isn’t that program, but it’ll certainly help us figure out what one might look like.

Image from Wikimedia Commons. The ten states shown in dark green are participating in RGGI. Observers are represented in lime green.