Creditworthy | $2.6 million in carbon allowances gives Maine and its power plants a fresh green sheen
Up until a month ago, an effort by Maine and other Northeast states to control greenhouse gas emissions through a regional cap and trade system was an innovative plan that existed only on paper.
But in late September, the 10 states that comprise the Regional Greenhouse Gas Initiative, or RGGI, held the world’s largest carbon auction, a first step toward implementing this market-based effort to reduce greenhouse gas pollutants. Under the plan, which some believe could become a model for a national initiative to curb carbon emissions, power plants must purchase pollution allowances in order to burn fossil fuels and emit carbon dioxide.
The plan is designed to reduce greenhouse gases from power plants by 10% from current levels by the end of the next decade. It calls for reducing the total number of pollution credits over that period and allowing utilities to find the most efficient means of
cutting back on carbon emissions through buying and selling the limited quantity of allowances.
Some RGGI supporters maintain its benefits will reach far beyond reducing greenhouse gases. The plan calls for reinvesting auction proceeds, estimated at up to $30 million per year in Maine, into commercial and residential energy efficiencies. The Natural Resources Council of Maine predicts these measures could actually lower electricity bills for consumers and business owners by up to 15% by helping them cut energy consumption and alleviating the need to build new power plants.
“RGGI represents a state-of-the-art attempt at controlling pollution levels at a way that is most economically beneficial for consumers,” said NRCM energy coordinator Dylan Voorhees.
But not everyone involved with developing RGGI believes it holds the same promise. Bill Cohen is a spokesman for Verso Paper, which owns two Maine power plants that will require carbon allowances by next year. The company made a successful bid on carbon credits in the recent auction, though Cohen would not disclose how many credits Verso purchased or what it paid.
Cohen, who was involved in the legislative process that created RGGI, said the program is an important first step in addressing carbon pollution, but he believes its potential positive economic effects should not be oversold. The one certainty about the RGGI program, he said, is that it will increase the cost of power production, and therefore raise the cost of power.
“It will go up,” Cohen said. “There’s no question. There is a cost.”
A Muskie School of Public Service report put the impact on electricity rates due to RGGI at approximately 0.5 percent per year, but Cohen said the impact will really depend on where the price of offsets settles once the supply has shrunk. In his opinion, there is a good deal of speculation in trying to predict how higher rates will be balanced by greater efficiency measures.
“It’s theoretical,” he said.
Whatever the costs associated with RGGI, Voorhees said the program is designed to minimize these expenses through harnessing the power of the marketplace. Voorhees also pointed out that there is a cost to doing nothing in terms of potential damage to the environment.
“It’s not like some magic program,” he said. “The purpose of the cap and trade is to get these costs as low as possible.”
Future gains
The electronic auction held in September proved at least one thing: RGGI has found a way to put a price on carbon allowances and create a market for these credits. The auction resulted in the sale of $39 million worth of credits, with power plants and investors paying $3.07 for each allowance for one ton of carbon dioxide emissions. Maine sold approximately 870,000 offsets and raised $2.6 million.
Most of these initial funds were placed in a trust dedicated to helping low-income residents weatherize and improve the energy efficiency of their homes. By law, 85% of funds collected in the future will be used for electrical efficiency upgrades.
The exact distribution of future funds has not been determined. But Maine Department of Environmental Protection Commissioner David Littell said the split would most likely be 60% for industrial efficiency projects and approximately 20% each for commercial and residential.
Voorhees said Maine is in a position to benefit greatly from these expenditures. He cited a study by University of Southern Maine economist Charlie Colgan indicating that Maine would save $450 million if the state were fully invested in cost-effective energy improvements.
“There’s a huge untapped potential for energy efficiency in our business economy,” he said.
Voorhees also said the energy savings would have a positive effect on the Maine economy in the form of job creation and the financial multiplier effect of keeping money within the state rather than using it to purchase imported oil.
Regardless of RGGI’s effect on the local economy, some maintain the program does not go far enough in addressing its central aim — curbing greenhouse gas emissions. Jon Reisman, an economics professor at University of Maine at Machias who participated in the task force that created RGGI, said he sees the program as “green symbolism” because he believes the proposed cuts in carbon emissions are too small to have any significant effect on global warming.
Cohen, the Verso spokesman, also points out that RGGI only addresses emissions from electric utilities while not addressing transportation, a more difficult sector to regulate and the largest source of greenhouse gas pollution in the Northeast.
“This model only gets at one element,” he said.
Despite its limitations, Cohen said he believes RGGI still holds the promise of serving as a starting point for a more comprehensive greenhouse gas reduction effort by the federal government. Though states are taking the lead in this area, Cohen said he has no doubt that a nationwide program will be forthcoming and regulators will be carefully watching RGGI to guide their decision making.
“If anyone believes ultimately there isn’t going to be a national carbon dioxide program then I don’t think they’re paying attention,” he said.
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