A New Jersey court recently ruled that Gov. Chris Christie lacked the legal justification for pulling his state out of the Regional Greenhouse Gas Initiative in 2011. What could the court's decision mean for the state's future participation in RGGI? And what role could RGGI play in U.S. EPA's pending existing source rule for power plants? During today's OnPoint, Collin O'Mara, secretary of Delaware's Department of Natural Resources and Environmental Control and immediate past chairman of RGGI, discusses the role state flexibility will likely play in EPA's final rule for existing sources. He also talks about RGGI's upcoming June auction.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Collin O'Mara, secretary of Delaware's Department of Natural Resources and Environmental Control and past chair of the Regional Greenhouse Gas Initiative. Secretary O'Mara, thank you so much for joining me.
Collin O'Mara: Thanks for having me.
Monica Trauzzi: Secretary O'Mara, New Jersey Court recently ruled that Governor Chris Christie lacked the legal justification for pulling his state out of the Regional Greenhouse Gas Initiative back in 2011. What could the court's decision mean for New Jersey's potential future participation in RGGI?
Collin O'Mara: Yeah, we always enjoyed having New Jersey as a partner. You know they've been a leader in solar policy; they've been a leader in offshore wind. And we hope that it lays the ground for them to rejoin the regional group. And we think that you know with EPA's rules coming out now and us making the case that we think a cap and trade program's the most cost-effective way to meet the requirements that'll likely come out of EPA and next year after the rule is finalized gives a perfect reason for the administration to rejoin the Regional Greenhouse Gas Initiative.
Monica Trauzzi: So how could New Jersey's moves impact the other RGGI states, the ones already participating, and how do these states view the political and legal actions that are sort of taking place in New Jersey?
Collin O'Mara: Yeah, it's interesting how they withdrew, because there's basically a notification on the website. And so you had a law that was passed by the legislature, and then you had a regulation that was promulgated by the Department of Environmental Protection and the administration. And so you know as they're going through that process, I mean they still have to deal with the fact there's a law on the books that requires them to be a part of the program. And I think from all the states' point of view is we would love to have New Jersey be back in the process. We could easily kind of pick up where we left off. You know we'd have to figure out how the, we've reduced the cap across the RGGI region in a fairly substantial way, and so we'd have to work through with them kind of what their portion would be. It's definitely doable; we've done it once before. But we would be thrilled to have them be part of the ...
Monica Trauzzi: Do you anticipate that they'll rejoin?
Collin O'Mara: We hope so. We hope so, 'cause we still believe that the economic benefits from a cap and trade program because of the investments in efficiency are much more cost effective and much more positive to the overall economy than all the other alternatives that, I mean, New Jersey will have to do something to comply with the EPA rule. They might as well participate in a program that is more cost effective than some of the other alternatives.
Monica Trauzzi: And EPA has been speaking to the various stakeholders as it crafts its rule for existing sources, and we understand that the rule is now at OMB for review. From what you know, how much consideration was RGGI given as a compliance mechanism under 111(d).
Collin O'Mara: Yeah, I mean we believe a lot. I mean there has been more outreach by EPA during this rule making than anything I've ever been a part of. You know between the administrator McCarthy and Janet McCabe and Joe Goffman and the entire team they have met with every single group [Laughter] that you can think of across the ... they've met with every single state commission. They've met with all the air directors. They met with the utility commissioners and the regulated utilities, the unregulated utilities. The number of conversations is staggering, and I think one thing that's come out is that they want to make sure that the programs that are in existence that are successful are allowed to count towards the new program. And so as they're defining their best system of emission reduction, it's very clear that RGGI is achieving the 45 percent reduction that we've achieved across the region. Not all of that is due to RGGI, but RGGI's a way to package it all together in a way that to make sure you're continuing to reduce emissions. We're fairly confident that it'll be one of the allowable paths forward to meet the standard.
Monica Trauzzi: So then how are RGGI states preparing for this?
Collin O'Mara: I think right now we're really trying to take a look. So we took some pretty big steps last year. When I was chair, one of the things we'd try to do is make sure we had a functioning market that would really lock in many of the reductions we've achieved. And we've seen about a 45 percent reduction in emissions from 2005 to 2013 or 2012 through our region. And so we've reduced the cap. We've made it much more of a competitive market, which we believe aligns much more closely with the 111(d) kind of rule making and this definition of best system of emission reduction. And so that was kind of the big first thing we did. We're also taking a look at you know what are potential elements of the program I need to tweak to comply with a mechanism.
And then probably most importantly we're looking at what are the paths, what are the steps that in a new state that wanted to join RGGI would have to take to be a part of it, because we're having conversations right now across the country that folks are saying look, we're trying to figure out how to put together a state plan of what we know about what likely is to come out of EPA. Your program is pretty attractive 'cause it's already designed, it's already implemented, it's really plug and play, so it'd tell us more. And so then once you get an offer like that [Laughter] that you'd have a mechanism by which to actually engage somebody at that level.
Monica Trauzzi: So what states have expressed interest in joining RGGI?
Collin O'Mara: Yeah, so all of their governors and their commissioners announced that, but it's not just on the east coast. I mean we've heard from folks in the midwest. We've heard from folks in the Rocky Mountain west and the Pacific Coast. Republicans, democrats. I mean I think folks are coming to the conclusion fairly quickly that rather than trying to quantify their efficiency budget and their renewable program and the fuel switching and the demand response and all the other types of efforts that contribute to reducing emissions, having a cap that kind of incorporates all of that, having allowances that are auctioned off so there's a market price and the revenues can be invested in efficiency is a much more elegant solution. And the fact that you've already done all the hard work of working through how the regional apportionments work, how the auctions take place, the fact that our compliance entities of the utilities and the generators already know how the rules work makes it very, very attractive 'cause they don't have to build something from scratch. And so we're hearing from a lot of folks who are saying just tell me a little bit more.
Monica Trauzzi: So the next RGGI auction will take place on June 4th, and states will be using a reserve price of $2.00.
Collin O'Mara: Mm-hmm.
Monica Trauzzi: This is the 24th auction. What are the lessons learned from that first auction to this one now, the 24th?
Collin O'Mara: I mean I think the biggest lesson learned is you know trust the market, and you know when you have a program that you know allows the market to set the price and assuming you have a cap that is somewhat reasonable, you'll achieve the most cost-effective reductions. I think the second lesson is that by having an auction structure that has the auction proceeds invested in efficiency and clean energy, you get a kind of a forced multiplier effect. So unlike you know European models and models in some other parts of the world where a lot of that revenue either goes just to the general fund or you know just kind of giving back in various mechanisms, by having those investments in efficiency the savings that you get from you know additional reductions, additional cost savings, the job benefits are so much greater.
And so we can argue our system based on very clear empirical data has had about a 1.8 billion dollar net economic benefit to our region when most folks inside the Beltway would assume well if it's a cap and trade program it's got to have a cost. Because of this investment in efficiency, it actually not only makes up for all the costs that there are, it actually has a net savings above that. And I think that's one of the messages we've been trying to get out, because the concept of a cap and trade system has been demonized nationally over the last few years, but that's really all based on theory. We have actual results that show the exact opposite, and we need to make that case.
Monica Trauzzi: What will the impact be of the new cap that you've announced?
Collin O'Mara: I mean the biggest impact is that it locks in a lot of the reductions that we've seen over the last couple of years as a result of folks switching from dirtier fuels from cleaner fuels, so a lot of folks switched from coal to gas. A lot of more renewables coming and in line of a lot of efficiency. So basically it locks us into the emission reductions that we saw during the recession, and it's going to require that any new generation that comes into the system be a lot cleaner and that as we continue to invest in efficiency that kind of our energy consumption per capita continues to decrease at a time when our productivity's going up. And so it's going to create a just an additional pressure to continue to reduce emissions across the region.
Monica Trauzzi: All right, very interesting. We'll end it there. Thank you very much for coming on the show.
Collin O'Mara: Very good.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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