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Cap and Trade Gives Massachusetts Economy Critical Boost, Defying Naysayers

New report on a ten-state initiative to reduce greenhouse gas emissions shows the program is a success after three years.

Dec 14, 2011
Gov. Deval Patrick

The state of Massachusetts is quietly reaping the benefits of cap and trade, the much-maligned process for curbing greenhouse gas emissions that federal lawmakers and many state governments resoundingly rejected in recent years. According to a recent study, cap and trade has created 3,800 jobs and nearly $500 million in economic activity for Massachusetts since 2008.

Massachusetts belongs to the Regional Greenhouse Gas Initiative (RGGI), the first and only mandatory carbon emissions trading scheme in America. A report analyzing data from the first three years of the effort found that of the 10 participating Northeast and Mid-Atlantic states, Massachusetts benefited most economically, because it used the bulk of its money to help fund its aggressive energy efficiency agenda.

"Energy efficiency investments have a much bigger multiplier effect than any other category of spending," said Paul Hibbard, vice president of the Analysis Group, the Boston-based consulting firm that prepared the report. When homeowners and businesses used RGGI dollars to retrofit and weatherize buildings, they not only ended up saving on energy costs and spending money elsewhere in the economy—they also put contractors and installers to work.

RGGI "is a very successful program ... and we look forward to continue achieving those results," Mark Sylvia, commissioner of Massachusetts' Department of Energy Resources, told InsideClimate News.

All the RGGI states saw a net economic benefit from the program, the report found, despite increased compliance costs for power plant operators and subsequent electricity rate hikes, largely thanks to energy conservation measures that reduced electric bills. Regionally, $912 million in total auction proceeds spurred $1.6 billion in economic value and created 16,000 jobs, the report found.

The states used their RGGI proceeds in a variety of ways, including patching state budget gaps, paying utility bills for low-income residents, and funding renewable energy projects. The other RGGI members include Connecticut, Delaware, Maine, Maryland, New Hampshire, New Jersey, New York, Rhode Island and Vermont.

Despite the success story described in the Analysis Group report, cap and trade's future in America seems uncertain.

A similar program, made up of seven western states and four Canadian provinces, suffered setbacks this year when Arizona defected and Montana, New Mexico, Oregon, Utah and Washington were dropped for failing to pass laws that would allow them to participate. California, the only remaining U.S. member of the Western Climate Initiative, will start capping its emissions in 2013.

The last major effort to create a national cap-and-trade policy was in June 2009, when the House of Representatives passed a bill crafted by Reps. Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.). A similar measure died in the Senate after tax-averse Republicans and Democrats from fossil fuel-producing states opposed it.

Americans for Prosperity (AFP), a group that has long opposed the RGGI effort and is largely financed by oil industry interests, has attacked the Analysis Group report as a politically motivated and "fraudulent" product of the far-left. The report was funded by the Merck Family Fund, the Barr Foundation, the Chorus Foundation and the Henry P. Kendall Foundation.

"According to this report, RGGI is the first tax in history to actually create jobs and prosperity with no ill effects on the people and businesses being taxed," Steve Lonegan, director of AFP's New Jersey chapter, said in a statement. "This is a totally one-sided report propped up by environmental extremists, career bureaucrats and Obama cronies."

This year AFP ramped up its efforts to dismantle RGGI state by state, usually with the support of Republican lawmakers who call it "cap and tax."

In May, New Jersey Gov. Chris Christie announced that his state will pull out of RGGI at the end of the year. Lonegan told InsideClimate News in the spring that AFP had given Christie information about RGGI and urged him to withdraw. Christie argued that "RGGI does nothing more than tax electricity, tax our citizens, tax our businesses."

The Analysis Group found that cap and trade generated more than $150 million in economic activity and created nearly 1,800 jobs for New Jersey.

Legislators in Delaware and Maine tried unsuccessfully this year to pass legislation that would have withdrawn their states from RGGI. The New Hampshire legislature voted to withdraw—but the bill was vetoed by Democratic Gov. John Lynch.

How RGGI Works

Under RGGI, fossil fuel power plants must curb the amount of CO2 they emit each year to a pre-determined level, initially set at 188 million tons of CO2 across the ten-state region.

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