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Cap and Trade Resurrected? Some States Awaken to Its Economic Benefits

Evidence showing that cap and trade can bolster a new revenue stream has some state and federal officials quietly seeking answers.

Jul 12, 2012
States and provinces participating in various state and regional cap-and-trade

Cap and trade is long dead in the United States, a victim of shifting political winds, fierce oil industry opposition and a weak economy.

Or is it?

Congress and a dozen Midwest and Western states abandoned plans for such programs during the past three years. That's left California and nine Northeast states alone in their embrace of the scheme, which sets a ceiling on CO2 emissions and allows polluters to meet it by buying permits in auctions—and sends hundreds of millions of dollars into state coffers.

With many states in financial trouble—and with evidence building that cap and trade can bolster a new revenue stream and create jobs—some states are starting to take a second look.

In interviews with InsideClimate News, economists, analysts and state officials say that conversations on the topic are generally taking place quietly and under the radar in a few governors' offices and in state legislatures, where both Democrats and Republicans dominate.

The catalyst was the release last fall of a 54-page economic analysis of the first mandatory carbon emissions trading scheme in America, the Regional Greenhouse Gas Initiative (RGGI). The report analyzed the $912 million in auction revenues that Northeast participants raked in from 2008 to 2011. It found that states netted $1.6 billion in economic benefits and created approximately 16,000 jobs by devoting proceeds to clean energy technologies, energy efficiency programs and other economic activities.

Since then, a handful of states, mostly in the Midwest but also in the deep South, have contacted RGGI officials about cap and trade, says Collin O'Mara, secretary of the Delaware Department of Natural Resources and Environmental Control. O'Mara chairs the board of directors for RGGI, Inc., the nonprofit corporation that helps states implement the initiative.

He believes people are confused. "The rhetoric at the national level isn't matching the experience of states that are taking action. Folks are trying to figure out what's the truth behind the numbers."

They're generally seeking answers to three questions, O'Mara says: How many jobs has RGGI created? What impact has cap and trade had on power plant operators? And, how have states benefited by steering RGGI money into energy-use reduction?

O'Mara declined to list the inquiring states out of concern that outing them would rile opponents and "stop the chance of progress." Cap and trade, once a cornerstone national energy policy among Democrats and moderate Republicans, has become a target of conservatives, who call it cap and tax and say it's emblematic of the Obama administration's 'big government' approach.

Because of that scrutiny, Paul Hibbard, vice president of the Analysis Group, the consulting firm behind the RGGI report, says he's "very surprised" at the interest in the study. State representatives and industry groups across the RGGI region and in California—as well as U.S. Department of Energy officials and federal legislative staff—have frequently brought in Hibbard and colleagues to explain their findings.

Hibbard says the RGGI study is unique because it examines cap and trade strictly from an economic angle. It doesn't consider environmental impacts or whether the program is crucial for curbing global warming pollution.

"We just looked at the [auction] money and the impact of those dollars. We found that there's absolutely an economic return for collecting cap and trade revenues. And that's true almost regardless of how you use them," he says. That includes in states like New York, which used tens of millions in cap-and-trade money to plug budget gaps.

RGGI launched in 2008 with bipartisan support from 10 states. The program only caps emissions from electric power plants.

Recently it has faced controversy that mimics the national debate. Republican lawmakers and Tea Party groups, led by Americans for Prosperity, have criticized RGGI for imposing heavy costs on power companies and their consumers. New Jersey Gov. Chris Christie withdrew his state at the end of last year. GOP-led efforts in Delaware, Maine and New Hampshire sought, but failed, to exit the pact.

Former Rep. Bob Inglis, a Republican from South Carolina, is floating a "revenue-neutral" cap-and-trade alternative that would return all of the money to consumers, under his new role as head of George Mason University's Energy and Enterprise Initiative, E&E Daily reported this week.

Hopes in Minnesota, All Eyes on California

Over in the Midwest, Minnesota is one of the states that's slowly reawakening to cap and trade's economic benefits, says Ellen Anderson, senior energy and environment advisor to Democratic Gov. Mark Dayton and a former state senator.

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