Cap and Fade?

News from New Hampshire this week regarding the state’s withdrawal from the Regional Greenhouse Gas Initiative (RGGI) program has major implications, both in the northeast and elsewhere around the country. RGGI, for those not familiar with it, is the first cap-and-trade program in the country designed to reduce greenhouse gases by placing a price on carbon dioxide emissions from power plants. Ten northeastern and mid-Atlantic states are presently participating in the program.

The NH House of Representatives, which was taken over by Republicans in the fall elections, voted overwhelmingly to repeal the law which authorized state participation in the RGGI program. At this time, the bill now goes to the state Senate, which is also expected to support the repeal in large numbers. Within New Hampshire, job training programs at local community colleges are in jeopardy, as well as educational programs for energy efficiency professionals. Programs like these have received much of the funding generated by the purchase of carbon emission allowances by New Hampshire power companies, which would dry up if the state leaves RGGI. To date, New Hampshire has received about $28 million from allowance sales. Critics of the program in New Hampshire claim that it increases the cost of electricity in the state, which gets passed on to citizens in the form of higher prices for products and services.

Nationally, the vote was widely reported as the "first nail in the coffin" of similar state and regional carbon cap-and-trade programs under consideration. Several California newspapers sought to use the New Hampshire action as a rallying point to reverse their own state’s cap-and-trade law known as AB32. In New Jersey, legislation to end the state’s participation in RGGI has been introduced, and a citizens activist group has been successfully lining up co-sponsors.

While RGGI has been seen by many as a model for federal cap-and-trade legislation, it has itself fallen victim to the economic downturn, with allowance prices dropping steadily due to reduced electric demand (and therefore reduced carbon emissions) in the northeast. Furthermore, at least three states (New Hampshire, New York and New Jersey) have dipped into their RGGI funds to help balance state budgets, providing ammunition to cap-and-trade critics who argue that the program will eventually be nothing more than a back door taxing scheme on electricity consumers, with no long-term environmental benefits.

With federal cap-and-trade legislation "off the table" in the 112^th Congress, some of the momentum behind state and regional carbon reduction programs seems to be disappearing, especially as state governments cope with unprecedented fiscal challenges. Time will tell if RGGI, AB32 and similar initiatives can be sustained in the face of growing political opposition and financial challenges. For New Hampshire at least, the answer right now seems to be no.