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GORDON L. WEIL: Cap-and-trade system dead in Washington, troubled in Northeast

Cap and trade, a mechanism for curbing carbon dioxide (CO₂) emissions is seemingly dead in Washington and faces challenges in the Northeast, where a version of it is in effect.

CO₂ is one of the greenhouse gases, which create a barrier that retains the earth’s heat. Most competent scientists say this barrier has a harmful effect on the climate. CO₂ accounts for about 85 percent of all greenhouse gas emissions.

Cap and trade is a system that places a dollar value on the reduction of CO₂ emissions. Through auctions, electric generators buy pollution allowances to help them meet their required reductions in CO₂ emissions.  

In Washington, national cap and trade is dead. First proposed by Republican President George H.W. Bush, it has been used successfully to cut emissions that cause acid rain. But it is no longer popular with the GOP.

Some Republicans don’t believe there is climate change, so they see no need to reduce emissions. Some don’t want cap and trade because they don’t want government imposing requirements on the private sector.

Republicans or Democrats representing coal-producing or coal-using states — most CO₂ generator emissions come from coal — follow their political instincts and oppose cap and trade.

In 10 northeastern states, however, the Regional Greenhouse Gas Initiative, a form of cap and trade known as “Reggie,” is alive.

Some states recently have begun using revenues it produces to help cover their general fund deficits. Electric customers, through payments for power, pay a hidden tax that bails out governments instead of the funds being used to promote energy-saving measures.

High-tax New York and New Jersey and low-tax New Hampshire use most of their Reggie proceeds this way. Maine law requires the money to be used to promote consumer energy benefits.

Here’s how Reggie works. By 2018, electric generators are required to reduce CO₂ emissions by 10 percent from 2014 levels, and meanwhile increases are limited. Generators may buy allowances to compensate for reductions, though the amount of allowances will also decline. Then they will have to cut emissions.

Here’s what’s right about Reggie. It will help modestly reduce a most harmful emission, and it uses a market-type mechanism with limited government involvement.

Here’s what’s worrisome about Reggie.

It deals solely with electric generators as the highest priority because, as a group, they are the largest single source of CO₂. The major problem is coal-fired generation, not used as widely in the northeast as in the Midwest, where CO₂ controls are not popular.

It looks like the good guys are carrying as much of the load as they can, while the rest of the country does little.

The second largest single source of CO₂ is vehicles, and there will be nothing comparable to cap and trade for them. Government incentives and support, taxpayer and electric ratepayer financed, will help develop electric cars usage. And if you buy one,  probably it will cost more than a conventional vehicle.

Then there’s the way Reggie is financed. Admittedly, the costs are small. David Littell, a Maine Public Utilities Commission member and the multistate Reggie chairman, rightly says, “If there is a cost, it is minuscule.”

One of the reasons the cost is low is that allowances for continued pollution are cheap, maybe too cheap.

Still, electric customers are paying the bill, even a really small one, for Reggie.

The problem is that legislatures repeatedly mandate added charges on electric and telephone bills, thinking that each one is so small that it will hardly be noticed. But the combined effect hurts business and residential customers.

You could argue that Reggie is really financed by user fees. Electric customers pay for pollution by electric generators. Under the Maine system, most Reggie proceeds go to large enterprises, so small customers subsidize large customers.

The last thing Maine needs is higher utility rates. If a legislative action is good public policy, it ought to be tax supported. If that can’t happen because taxpayers wouldn’t like it, why should ratepayers pay a hidden tax?

When Reggie funds are used to cover budget gaps, as in the three states mentioned above, the program is just another tax. Maybe the fact it produces revenues for the state will save the program, but a growing failure to use it to promote energy efficiency could kill it.

Some said Reggie would do economic damage. It hasn’t. Others said it would promote jobs devoted to energy efficiency. The jury’s still out on its economic benefits. Diverting funds doesn’t help.



Gordon L. Weil, a weekly columnist for this newspaper, is an author, publisher, consultant and former international organization, U.S. and Maine government official.