Editor’s note, November 2019: This article was originally intended for the Watchdog Wire – Maryland site but since that page no longer exists except in archive form I brought it home.
In the wake of President Obama’s unilateral decision to do something – anything, as long as it doesn’t need approval from Congress – about the perception that climate change is anthropogenic and the United States must take a lead role in changing our planet’s temperature, this may be a good time to review the effects of an earlier attempt at combating global warming known as the Regional Greenhouse Gas Initiative (RGGI). Nine Northeastern states, including Maryland, are members of this group – the others are Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, and Delaware. New Jersey was also an original member of the cabal but left in 2012 at the behest of their governor, Chris Christie, who called the RGGI effort “gimmicky” and “a failure.” The group, and its associated non-profit corporation, describe themselves as such:
The Regional Greenhouse Gas Initiative (RGGI) is the first mandatory market-based regulatory program in the U.S. to reduce greenhouse gas emissions. RGGI is a cooperative effort of Northeast and Mid-Atlantic states to reduce emissions of carbon dioxide (CO2) from the power sector.
RGGI, Inc. is a non-profit corporation created to provide technical and administrative services to the states participating in the Regional Greenhouse Gas Initiative.
While the idea was supposedly one of making utilities pay for the messes they create by using carbon-based fuels to create the electricity we all need, the reality is that RGGI, at least in Maryland, mainly has served as yet another method of redistributing wealth.
In the legislation which codified state participation in RGGI, much of Maryland’s share of the proceeds was assigned to providing direct utility bill assistance to low-income residents as well as energy efficiency programs primarily targeted at low- and moderate-income households. Only about a quarter of the proceeds were targeted for overall rate relief, while just over 10 percent of the auction proceeds were earmarked for renewable energy “public education and outreach.”
This original financial agreement on RGGI proceeds was not without its share of haggling; however, because there’s a lot of money at stake. Out of the nine remaining RGGI states, Maryland ranks second only to New York in total take, with over $276 million raised over the period, including $30.7 million at the latest auction. That’s a lot of weatherstripping, although the MEEHA program spent over $5.9 million last year retrofitting 27 multifamily complexes in its final year, with financial assistance from the federal government’s 2009 stimulus program. Once that assistance ran out the MEEHA program was discontinued, although a new program with direct utility assessments has replaced it and no longer depends on funding from RGGI proceeds.
Yet little is known about the inner workings of RGGI. Through them, we can determine that there have been 20 auctions, which are now scheduled about once a quarter, since the first one in 2007. They release a list of “potential” bidders and various financial data about the auction, but don’t tell who won. One interesting note is that the ratio of allowances awarded to “compliance entities” – utilities – sharply declined in the last two auctions to less than 70 percent after being at or near 100 percent for several previous auctions. It is unclear if this is speculative buying by non-compliance entities hoping to profit on the secondary market or a lack of bidding by compliance entities who have unused allowances remaining after the first control period, which ended March 1, 2012. (This was established by the original Memorandum of Understanding between the original signatory states in 2005. Maryland was the last state to be added to RGGI once Martin O’Malley was elected as governor in 2007.)
But RGGI’s penchant for avoiding transparency in the name of maintaining trade secrets has frustrated those interested in good government. This New Jersey Watchdog story also points out that speculators can drive up the price for allowances, resulting in higher expense for energy providers. It may be a possible explanation why allowance prices – which bottomed out under $2 for several auctions in a row beginning in mid-2010 – have suddenly surged back to $2.80 in March and $3.21 earlier this month, as speculators have picked up over 30% of the available allowances in the last two auctions. Unfortunately, we don’t know the price utilities paid for their allowances as compared to the speculators, as RGGI does not make that information public.
And despite the cheerleaders in the media who believe RGGI is the best thing since sliced bread, others who look at things more skeptically as a “government boondoggle” point out the real aim of the initiative:
At the start of the RGGI process there was a tacit understanding amongst the participants that the real goal of RGGI was to develop the framework for a CO2 cap and trade program that could be used as a model for a national program. After all, the unstated reality is that it could never hope to actually have any impact on global warming.
The full-court RGGI charm offensive, though, has always been strongest in the leftist community, which considers the program a success because:
The market-based carbon-reduction system in RGGI works because proceeds from allowance auctions provide a much-needed revenue source to jumpstart public and private investment in the clean energy economy.
Nothing like creating a market where none would otherwise exist. But criticism like that is dismissed as propaganda from oil company shills, with the Koch brothers a frequent target. Ironically, a Koch affiliate has bid on RGGI allowances in several auctions.
Since the state wasn’t an original signatory, one may ask why Maryland joined RGGI.
As I noted up top, President Obama made the unilateral decision to address global climate change by executive fiat. In Maryland Martin O’Malley also made a similar decision to sign on to RGGI. But while electrical rates continue to climb, the carbon emissions leveled off anyway due to the poor economy. In order to address this seeming contradiction, RGGI allies commissioned a study extolling the benefits of the program.
But when the Analysis Group study assumptions were debunked by the Institute for Energy Research, and it was learned the general idea of trading carbon credits is full of holes for exploitation, it became more apparent that the goal of establishing RGGI was that of finding a roundabout way to establish the carbon tax environmentalists have dreamed of for decades without inciting the wrath of voters by doing so directly from them. It’s easy to establish utilities which regularly make news for asking for rate increases as the bad guys having plenty of money to spare, despite the fact they need consumer purchases at a rate which covers their expenses to survive.
Over twenty auctions the toll, much of which was eventually passed along to ratepayers by the utilities whose free capital was tied up by having to comply with this government mandate, is $1.35 billion shared among the ten participating states. Although some participants have diverted funds from their appointed purpose, states have generally used the money to promote energy efficiency in some manner. In a simple economic sense, utilities are deducting from their bottom line by promoting a reduction in the use of energy.
But the overall question remains, particularly in Maryland: if utilities are willing to cut their own financial throats (and enrich well-connected investors such as Morgan Stanley, Royal Bank of Canada, and a slew of energy marketing firms), why is the government needed at all? Our state government has placed itself in a familiar position: writing mandates for energy firms to follow and distributing the proceeds from these regulations to favored special interests in the name of the “public good.” All the while they perpetuate the flawed notion that they’re doing something to reverse an imagined climate change.
Yet until the political climate changes in Annapolis we will be saddled with this redistribution scheme, one which eventually will have a significant impact on utility bills. Future regulations will clamp down on the allowable short tonnage of carbon utilities are allowed to emit from 165 million tons to 91 million tons, meaning that the auction price is sure to increase for the tightened supply and the vicious cycle of increased costs to consumers will accelerate.
While summers will still be hot and humid like always, the only climate change one of chilling the Maryland business climate with higher utility rates.