Koch Bros. Influence Felt in New Jersey as Governor Weighs Carbon Market Exit

New Jersey’s potential withdrawal from the 10-state Regional Greenhouse Gas Initiative would deal a major blow to the cap-and-trade scheme

Gov. Christie holds townhall meeting, Jan. 13, 2011/Credit: Governor's Office, Tim Larsen

New Jersey Governor Chris Christie is re-evaluating the state's participation in a regional carbon trading program and could opt to withdraw within a few weeks.

Observers say the move is expected in response to pressure from GOP legislators and campaigns mounted by groups funded by billionaires Charles G. and David H. Koch.

The anticipated policy reversal is in step with recent actions in Maine and New Hampshire, where Republican-dominated legislatures are trying to repeal their states' participation in the Regional Greenhouse Gas Initiative (RGGI), a carbon market between 10 Northeast and Mid-Atlantic states and the first mandatory emissions trading plan in the country.

Christie said he was concerned that RGGI places a burden on New Jersey businesses by raising energy costs, and thus gives a competitive advantage to states like Pennsylvania that do not participate.

"Is there enough of a benefit to the state to keep it going or is it too much of a detriment on business?" he asked at a March 24 town hall meeting in Nutley, according to transcripts provided by the governor's office to SolveClimate News.

"The thing I'm most concerned about is that it doesn't seem to be working in the entire region. The value of these credits are getting less and less as we continue to go further and further out, and the value of the program is becoming less and less," he continued.

"So we are evaluating all that, and within the next two months I'll give you a definitive answer on whether we are going to continue it."

Christie is expected to announce his final decision in just a few weeks, before he unveils his state energy plan in May, said Luis Martinez, an energy attorney for the Natural Resources Defense Council (NRDC) in Washington, D.C.

RGGI Funds Used to Balance Budget

Martinez said that while the state legislature has remained solid in supporting RGGI, the Republican governor, who took office in 2010, is not as familiar with the program and its benefits as those who voted to join it. In his first term, Christie spent most of the RGGI funds on balancing the budget.

New Jersey joined RGGI under the 2007 Global Warming Response Act, which requires the state to reduce greenhouse gas emissions to 1990 levels by 2020, for a reduction of about 20 percent. By 2050, emissions must reach 80 percent below 2006 levels.

Senate President Stephen Sweeney co-sponsored the state's bid to join RGGI with Sen. Bob Smith in 2008. The Democratic senators have continued to show support for the program, as has Assembly Speaker Sheila Oliver, who voted for the joint resolution.

RGGI requires power plants in participating states to cap CO2 emissions at 188 million short tons per year through 2014, with additional annual reductions of 2.5 percent from 2015 to 2018. States can sell carbon allowances through auctions and invest the earnings in energy efficiency and clean energy technology efforts.

The program was launched in 2005 and held its first quarterly online auction for carbon credits in 2008.

Participating states so far have raised nearly $861 million in carbon allowances from 11 auctions. More than half of those funds went to improving energy efficiency, according to the latest auction results posted by RGGI.

New Jersey has raised $102 million in proceeds to date, the fourth highest amount behind New York, Maryland and Massachusetts.

Proceeds in New Jersey are distributed through the Clean Energy Solutions Capital Investment (CESCI) loan/grant program. About one-third of the state's proceeds so far have been spent on clean energy and customer assistance programs to cut electricity costs.

In 2010, the state allotted $29.6 million for 12 large-scale projects, but only six projects worth $12.3 million in loans actually closed after some funds were used to cover state budget gaps.

Koch Brothers Wielding Influence

Martinez noted that the governor's re-evaluation of RGGI may in part be a response to mounting pressure from outspoken RGGI opposition groups, namely Americans for Prosperity (AFP), founded by David Koch in 2004, and the American Legislative Executive Council (ALEC), which is funded partly by the Charles G. Koch Charitable Foundation.

"Unofficially, [Christie] is just responding to the pressure that both of these groups are putting on the state and on him," Martinez said, "which is basically this Koch Brothers-funded agenda to attack anything on climate."

Charles and David Koch, billionaire oil executives, are considered the country's most prominent financiers of efforts to unravel regulations on industrial greenhouse gas emissions.

In February, AFP launched a media blitz of radio spots and television advertisements in New Jersey to alert residents "to the fact that RGGI will cause their electricity rates to soar and cost our state jobs," according to the announcement.

"The governor goes around at these town hall meetings, and they have been showing up and challenging him on RGGI," Martinez said.

AFP is planning a similar media campaign for New Hampshire and has applauded a March 30 vote by the state's House of Representatives to pull New Hampshire out of the carbon trading program.

In Maine, AFP is backing a bill introduced last week by Republican State Sen. Tom Saviello, the sole sponsor, to withdraw the state from RGGI and the northeast power grid.

Calls and emails to the Arlington, Va.-based Charles G. Koch Foundation and Koch Industries Inc. in Wichita, Kan. requesting comment were not returned by deadline.

Koch Industries, in a statement released last year, said it "will continue to encourage a civil, science-based discussion of the effect of greenhouse gases on the climate, and the potential effects and costs of policies proposed to deal with climate change."

AFP: We're Urging Christie to Leave RGGI

Steve Lonegan, director of AFP's New Jersey chapter, told SolveClimate News that his office had provided Christie with information on RGGI and urged the governor to repeal the measure.

The chapter also runs a website, NO NJ Cap and Trade, as a resource for RGGI opponents and New Jersey residents. According to claims on that site, energy taxes under RGGI have cost businesses and consumers more than $66 million.

"We all share a desire for clean air and water and to improve the environment. This will not do that," Lonegan said.

He pointed to a 2010 report  prepared on behalf of RGGI that showed the program's cap would only begin to significantly curb carbon dioxide emissions by 2030. And he added that unidentified speculators or investors could purchase carbon permits for the current bid price of $1.89 per allowance and sell them for $20 in the future.

"Why is it necessary that there be a scheme whereby investors can make huge profits off the resale of these permits down the road?" he asked.

Internal GOP Pressures in Legislature

Christie is also facing internal pressures from Republican legislators at home.

In September, lawmakers introduced a set of bills to repeal the Global Warming Response Act and New Jersey's participation in RGGI.

Assemblywoman Alison Littell McHose and Assemblyman Michael Patrick Carroll introduced a bill with 26 co-sponsors to the Environment and Solid Waste Committee, and Senators Michael Doherty and Steven Oroho introduced a companion bill with 11 co-sponsors to the Environment and Energy Committee.

No hearings are currently scheduled for the bills, although legislators have until Jan. 10, 2012 to vote on the measures, according to the Office of Legislative Services.

Jeff Tittel, director of the Sierra Club's New Jersey chapter, told SolveClimate News that he is not confident that Christie will uphold the state's participation in RGGI. "Given where he's been heading, there is a very good chance that [Christie] will withdraw."

Christie Skeptical of Man-Made Warming

Christie told a town hall meeting in October that he is skeptical that humans are responsible for global warming.

In March, he supported a decision to withdraw New Jersey from Connecticut v. American Electric Power, an ongoing lawsuit filed in 2004 by eight states. The suit aims to force five utility companies to cap and reduce greenhouse gas emissions by 3 percent annually over 10 years.

Environment New Jersey, a statewide advocacy group, said in a recent evaluation of Christie that the governor had cut more than $400 million from state clean energy programs and had skirted enforcement of greenhouse gas regulations and water quality rules.

Tittel of Sierra Club said that Christie had essentially already exited from RGGI by spending $68 million from carbon credit sales to balance the 2010 state budget.

Similar raids of RGGI funds took place last summer in New Hampshire, where lawmakers voted to take the state's $3.1 million share of the proceeds to help patch a $295 million budget hole. New York pulled $90 million out of its proceeds — which to date total $312 million — to bolster its general fund.

NJ Exit Would Be 'Very Bad Thing' for RGGI

NRDC's Martínez said that New Jersey's potential withdrawal from RGGI would not force other states to abandon the program, but it would deal a major blow to the carbon market.

The state is the fourth-largest emitter of greenhouse gases out of 10 participants.

In 2008, New Jersey emitted some 20.6 million tons of carbon dioxide — or nearly 14 percent of total emissions that year from RGGI states. It also accounted for about 12 percent of proceeds from the 11 carbon auctions.

By comparison, New Hampshire contributed 4.5 percent of total 2008 emission levels, and generated 3.6 percent of the carbon proceeds to date.

"We don't want to lose any state, but New Hampshire is one that is fairly small. It is different with New Jersey — it is a big state and a key participant in RGGI in terms of the size of the [market]," Martinez said.

"It would be a very bad thing for the program if New Jersey were to pull out."

However, Martinez said that he thinks Christie's re-evaluation of RGGI could assuage the governor's concerns that the program drives up energy costs and creates an unfavorable business climate.

"New Jersey imports a good part of its energy from Pennsylvania. At the beginning, when we were evaluating RGGI, we were concerned that if cost per kilowatt-hour in the state went up, that would favor [energy] imports," he said.

"What we have seen is that the cost of energy has been going down since RGGI started, and primarily it is because of the availability of cheap natural gas," he said.

He added that transmission capacity running from Pennsylvania into New Jersey is maxed out. If Pennsylvania's power did indeed become cheaper, energy companies would have to build more transmission lines, during which time energy prices in RGGI states would continue to fall.

"The way the program was designed was to auction pollution permits and use that money to invest in energy efficiency programs that would reduce the total bills for folks. By reducing energy consumption as a whole, it would actually reduce energy prices," he said.

"The less energy that you buy, the less the clearing prices for [wholesale] energy in the state."

RGGI Proceeds Could Support Gov.'s Goals

Martinez noted that proceeds from RGGI would support Christie's clean energy platform by offering financing for offshore wind development, solar energy installations and green manufacturing.

Pat Rose of the New Jersey Economic Development Authority said in an e-mail that the six projects receiving $12.3 million in loans from CESCI funding are expected to leverage more than $30.2 million in public-private investment and lead to the creation of 50 permanent jobs and 39 construction jobs.

Among those projects is a 3.5-megawatt solar facility for William Paterson University in Wayne. The project, which Rose said is being called the largest university solar facility nationwide, is expected to save $4.3 million in energy costs over the next 15 years.

Martinez said: "When the governor sits down to look at [RGGI], he'll see that it matches very well with what he wants to do on clean energy."

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