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)

RGGI CO2 Auction Nets $80.4 Million in Proceeds

Current Control Period Allowances Sold at $1.88

Future Control Period Allowances Sold at $1.86

The ten states participating in the Regional Greenhouse Gas Initiative (RGGI), the nation’s first mandatory, market-based program to reduce greenhouse gas emissions, today announced the results of the second quarterly auction of carbon dioxide (CO2) allowances in 2010. The auction, held Wednesday, June 9th, yielded $80,465,566.78 for states to invest in the clean energy economy. 40,685,585 CO2 allowances for the first three-year control period (2009-2011) offered in Wednesday’s auction sold at a price of $1.88. In a parallel offering, the RGGI states also auctioned CO2 allowances for the second three-year control period (2012-2014). A total of 2,137,993 CO2 allowances for the second control period sold at a price of $1.86.

Proceeds from all the RGGI auctions now total more than $662.8 million. States are investing these proceeds in consumer benefit programs that further reduce emissions, save consumers money and create jobs. Overall, states are investing the vast majority of proceeds to improve energy efficiency and accelerate the deployment of renewable energy technologies. Overall, states are investing roughly 60 percent of the proceeds from RGGI CO2 allowance auctions in energy efficiency, the most cost-effective resource for reducing energy demand in the near-term.

Energy efficiency measures, such as building retrofits, heating system replacements and appliance upgrades, save consumers 20 to 30 percent off their energy bills. While states maximize near-term energy efficiency opportunities, they are also investing in renewable energy sources for a long-term clean energy future. Across the region, funds are being used to install solar, wind and geothermal energy generation systems in commercial and industrial facilities and to deploy solar energy and hot water systems on homes and businesses. States are beginning to document both the direct consumer benefits and the broad economic gains that the investment of RGGI proceeds is bringing to the region.

For example, in Connecticut, electric and gas energy efficiency programs, funded in part with RGGI proceeds, are producing more than $4.00 in benefits for every $1.00 invested. New York is showing a greater than 8 to 1 benefit for every dollar invested in renewable energy systems.

To learn more about how each state is investing RGGI auction proceeds

Additional details about RGGI Auction 8: Market Monitor Report for Auction 8 available

The next RGGI auction is scheduled for September 8, 2010.

SELECTED INVESTMENT HIGHLIGHTS

Selected investment highlights from each of the ten RGGI states include the following:

Renewable Energy

* Connecticut has approved $1.3M of its RGGI allocation for municipal projects in the On-Site Distributed Generation Program -- the allocation funds solar PV energy systems on municipal buildings. Between November 2009 and May 2010, 9 projects were approved, 7 on schools and 2 on town buildings. Together, the projects will add 415 kW of clean, renewable power to the grid.

* Maryland has invested $2.16M in its RGGI proceeds in its Solar Energy Grant Program -- a program to provide grants for solar electricity and hot water systems on homes and businesses. Since RGGI began, over 400 grants have been awarded to residents across the state. The grants helped add over 1,700 MWh of clean, renewable solar power to the grid.

* New Jersey has invested $19.4M in its Clean Energy Solutions Capital Investment Loan/Grant Program -- a program to provide zero-interest loans and grants for large-scale renewable energy and energy efficiency projects. Through April 2010, 8 projects have received grants or loans for combined heat and power (CHP) systems, commercial-scale solar electric systems and a feasibility study for an offshore wind turbine installation. The funded CHP and solar-electric systems represent 14 MW of new, clean generation capacity.

Energy Efficiency

* Maine has invested $3.5M in its Industrial Energy Efficiency Grant Program -- a program to provide grants between $100,000 and $1 million for large-scale energy efficiency projects, including CHP systems. In 2009, a total of 16 grants were awarded, 6 of which were funded by RGGI. The 6 RGGI projects will avoid more than 367,560 metric tons of CO2 over their lifetime.

* New Hampshire has invested $500K in its EnergySmart Schools Program -- a program to provide energy benchmarking services to New Hampshire’s K-12 schools. Each school will receive a report which documents energy use, costs and emissions for each building, and provides recommendations for immediate strategies to reduce energy use.

* Rhode Island has committed $3.95M to the Least Cost Procurement Energy Efficiency Utility Account at National Grid for supplementing and expanding energy efficiency programs, including: home energy audits, Energy Star lighting and appliance rebates, high-efficiency heating, water heating and controls incentives, Energy Star central air conditioning rebates and energy efficiency educational programs.

* Delaware has invested RGGI proceeds in the Sustainable Energy Utility’s Energize Delaware Appliance Rebate Program -- a program to provide rebates of up to $200 for the purchase of an Energy Star-qualified clothes washer, dishwasher, room air conditioner, or gas water heater. Since September 2009, the program has provided more than 10,000 rebates, saving consumers nearly $250,000.

* Vermont has invested RGGI proceeds in its Button-Up Vermont Program -- a program to provide free home energy-savings workshops where residents learn how to implement do-it-yourself measures to improve energy efficiency. Participants also learn about saving opportunities associated with energy retrofits, and about technical and financial resources available to them.

Workforce Development

* New York State committed $8M to the Workforce Development Programs -- To meet ambitious legislated goals for improving the energy efficiency of existing homes, New York is devoting substantial resources to greatly expand the workforce training infrastructure needed to prepare workers to design, install, and maintain energy efficiency initiatives. Funds will be used to provide apprenticeship and internship incentives to employers and training institutions, expand existing training centers, fund basic skill initiatives, provide funding for training equipment, and improve field testing process and certification examinations to help increase the number of qualified workers. The funds are projected to significantly increase the number of workers that have been trained over the past few years.

* Massachusetts has invested $1.9M in its Energy Efficiency Skills and Innovation Initiative -- a program to train the state’s cutting edge green collar workforce. Under the program, Springfield Technical Community College is serving as a statewide clearinghouse for energy efficiency training activities, materials and services, and is coordinating job training at community colleges across the state.

About the Regional Greenhouse Gas Initiative: The 10 Northeast and Mid-Atlantic states participating in RGGI (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, New York, Rhode Island and Vermont) have designed and implemented the first market-based, mandatory cap-and-trade program in the U.S. to reduce greenhouse gas emissions. Power sector CO2 emissions are capped at 188 million short tons per year through 2014. The cap will then be reduced by 2.5 percent in each of the four years 2015 through 2018, for a total reduction of 10 percent.

A CO2 allowance represents a limited authorization to emit one short ton of CO2, as issued by a respective participating state. A regulated power plant must hold CO2 allowances equal to its emissions to demonstrate compliance at the end of each three-year control period. The first control period for fossil fuel-fired electric generators under each state’s CO2 Budget Trading Program took effect on January 1, 2009 and extends through December 31, 2011. CO2 allowances for the first control period (2009-2011) may be used to meet current compliance obligations, or may be banked for use in future control periods. CO2 allowances for the second control period (2012-2014) can only be used to meet compliance obligations beginning in 2012. CO2 allowances issued by any participating state are usable across all state programs, so that the ten individual state CO2 Budget Trading Programs, in aggregate, form one regional compliance market for CO2 emissions.

RGGI, Inc. was created to provide technical and administrative services to the states participating in the Regional Greenhouse Gas Initiative. RGGI, Inc. is a 501(c)3 nonprofit organization. The RGGI auctions are administered by RGGI, Inc. and run on an online platform provided by World Energy Solutions, Inc.