Boston Globe RGGI article, 1.3.08 Press

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Emissions down, but lasting efforts may suffer

By Beth Daley, Globe Staff  |  January 3, 2008

Greenhouse gas emissions from Northeast power plants were about 10 percent lower than predicted during the last two years, because of milder weather and increased reliance on natural gas instead of oil.

But the decrease may have some unanticipated consequences for efforts to combat global warming: It could have the perverse effect of delaying more lasting reductions, by undercutting incentives intended to spur power plants to invest in cleaner technologies and energy efficiency.

Massachusetts and nine other Northeast states are part of a landmark pact called the Regional Greenhouse Gas Initiative that is designed to cap power plant emissions in 2009 and then gradually reduce them by 10 percent over the next decade. Power plants will have to buy emission allowances from states for every ton of carbon dioxide they emit, with plants that emit larger amounts having to buy more allowances than cleaner ones. The number of available allowances will decrease as the overall cap is lowered, raising their price and, with hope, encouraging plants to invest in clean technologies to avoid the higher cost of polluting.

But if emissions are significantly lower than the cap, there would be less demand for allowances, driving down their price and giving power plants little financial incentive to invest in cleaner and more efficient technologies.

"If the cap is above what power plants are emitting, we won't see any change in their behavior," said Derek K. Murrow, director of policy analysis for Environment Northeast, a nonprofit research and advocacy organization. "They just continue business as usual."

Business groups, however, say environmentalists should celebrate that emissions are lower than anticipated. An official for Associated Industries of Massachusetts, an employer association, said there are millions of dollars being invested in green technologies in the state, so it's not necessary to rely on the emissions pact to spark investment. For example, Governor Deval Patrick just announced a $68 million program to increase solar energy use in homes, schools, and businesses by 600 percent in the next four years.

"If we are under the cap, what is the problem?" said Robert Rio, senior vice president of Associated Industries. "The goal of the program is to reduce greenhouse gases."

The regional pact is one of the first major efforts to bypass President Bush's refusal to support strict federal limits on greenhouse gases.

In addition to all the New England states, Delaware, New Jersey, Maryland, and New York have signed on to the deal. The agreement is widely viewed as a possible model for a future national carbon reduction program and is being watched carefully by Midwestern and Western states that are starting similar emissions reduction schemes.

The woes of RGGI, as the Northeast initiative is known, are not unique. Similar troubles plagued the European Union's initial attempt to reduce emissions, which set a greenhouse gas cap far above actual emissions. Too many allowances were introduced into the marketplace, driving down their price so greatly that they sold for pennies, giving plant operators little incentive to pollute less.

Some environmentalists and energy specialists say the Northeast also set too high a cap - one based loosely on the average emissions of 2000-2002 and then bumped up another 3 percent to 4 percent to account for economic and energy growth. Power plants were supposed to hit that cap in 2009.

But in 2006, emissions unexpectedly dropped. Many power plants in the Northeast can burn oil or gas, so when natural gas prices fell and oil prices skyrocketed, those plants began burning gas, which emits less global warming pollution than oil. Cool summers and warm winters the past two years also reduced energy usage.

In 2005, emissions were about 2 percent below the cap. But they were about 13 percent below in 2006, based on an analysis by Point Carbon, a Norway-based research and consulting company. Environment Northeast estimates that 2007 emissions were about 11 percent below the cap, based on available US data.

"The main message is that emissions in RGGI are more volatile than anyone had anticipated," said Véronique Bugnion, Point Carbon's managing director for North America. Her group published a report in August that suggested that the RGGI cap might be too high.

Officials of states involved in RGGI and energy specialists are discussing ways to ensure that allowances have enough value to spark investments in cleaner technologies. One solution would be to lower the cap, but that's likely to be politically difficult because of opposition from the business community and power companies.

A better solution, Murrow said, would be to do what eBay does: Set a minimum bid for the allowances. If the market price falls below that bid, states could hold onto the allowances until prices rise. Or even better, he said, they could take some allowances out of the system permanently, making fewer available to power plants and driving up the price.

Laurie Burt, commissioner of the Massachusetts Department of Environmental Protection, said she and other state officials are aware of the problem and discussing ways to solve it.

She said she wasn't overly concerned because there are several mechanisms allowed by RGGI, including setting a minimum bid, that can ensure allowances don't sell for too little.

"We want to get this right," she said.