Cap-and-Trade Revenues Fixing State Budget Shortfalls

Ten Northeastern states held carbon dioxide auctions selling credits for carbon emissions to electric utilities, who purchased the credits either to allow themselves to send carbon dioxide out the smokestacks of their own power plants, or to re-sell those credits to other utilities. The auction, a quarterly feature of North America's only working cap-and-trade regime for greenhouse gases, raised $80.5 million. The ten states have largely committed to promoting energy efficiency.

In the Regional Greenhouse Gas Initiative (RGGI) states agreed to use auction proceeds to reducing energy usage. Some states have redirected use of the money.

New Jersey's Global Warming Response Act said 80 percent of the money should go toward energy-related causes. New Hampshire lawmakers voted to take all of the state's expected $3.1 million share of the proceeds and use it to help plug a $295 million budget hole. New York transferred $90 million out of a fund of auction proceeds and into its general fund. And New Jersey is poised to use $65 million from carbon-credit sales to help balance its budget, pending a vote of the Legislature.

RGGI is a simple concept: States cap pollution, charge polluters to pollute, and put the money back into programs that conserve energy. The RGGI raids not only violate the states' original agreement with each other, but also upend the idea that cap-and-trade was supposed to save ratepayers money on their energy bills in the long run. It means cap-and-trade will cost money now instead of saving money.

The RGGI raids would seem to confirm the fears of critics: that cap and trade is a back door tax. With three states stashing extra auction proceeds in their general funds, there’s evidence to support the view that cap-and-trade regimes amount to just another tax.

RGGI held its first auction of carbon allowances in September 2008. Ten states now participate — Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. The auctions have raised a total of $663 million.

Although RGGI is a collaborative effort, it is ten different programs in ten different states. That’s one reason why the states have reached very different conclusions about whether or not to dip into their RGGI funds.

In Rhode Island, state law would prevents using the auction funds to fill a budget hole. In Maryland last year, lawmakers diverted RGGI money from energy-efficiency programs to helping low-income residents with their power bills.

In New York last December, Governor David Paterson proposed and the Legislature approved putting half of the state’s available RGGI money toward the general fund, even though state regulations called for it to be spent on energy efficiency.

New Jersey’s global warming law directs where the RGGI money is supposed to go. The catch there is that it’s not constitutionally dedicated, which allows the governor and lawmakers to raid it for budget purposes. Making the money constitutionally dedicated, which would be the next step in protecting RGGI money, requires a two-thirds vote by the Legislature and a ballot vote by state residents.

In New Hampshire, the RGGI money was legally dedicated to energy efficiency. That’s why the state Legislature had to vote for it to be spent toward the budget. (Stateline.org, 6/26/2010)