Pew Center's Judi Greenwald analyzes Northeastern states' cap-and-trade plan

Seven Northeastern states are finalizing a greenhouse gas cap-and-trade plan, which will affect hundreds of fossil fuel-burning power plants in the region, beginning in 2009. But will the Regional Greenhouse Gas Initiative mean higher electricity costs for consumers and businesses? How far can renewable energy sources and energy efficiency go toward meeting proposed emissions cuts? And is the RGGI effort compatible with emerging climate policies in other states? During today's OnPoint, Judi Greenwald, director of innovative solutions at the Pew Center on Global Climate Change, weighs in on what is happening in the Northeast.


Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining me today is Judi Greenwald. She's the director of Innovative Solutions at the Pew Center on Global Climate Change. Judy thanks a lot for being here today.

Judi Greenwald: Thank you for having me.

Brian Stempeck: Now we said a number of states in the Northeast announced the Regional Greenhouse Gas Initiative. This is a cap-and-trade plan for this kind of region of the country affecting power plants. Explain for us, real broadly, just how this plan is going to work.

Judi Greenwald: Well broadly, a cap-and-trade program, any cap-and-trade program, sets an overall emissions constraint on a group of emission sources. Each source doesn't have to necessarily emit a certain amount. But if they want to emit more they have to hold more what are called emission allowances. And if they can emit less and they have extra emission allowances they can sell them to others. So the idea is you have a group of sources that can overall have to emit at a lower level. But some can emit more and some can emit less. So that those who have the most cost effective opportunities to reduce emissions will do so. So it's a way to meet an emissions constraint at the lowest possible cost.

Brian Stempeck: Now this plan, it starts in 2009, kind of capping current emissions and gradually moves down from there reducing by about 10 percent over the next few years. So if I'm the CEO of Con Edison in New York, what are my options in terms of reducing emissions that RGGI would basically lay out for me?

Judi Greenwald: Well, I can reduce emissions at my own plants. If I have a coal-fired power plant I could make that plant more efficient. I could switch to natural gas. I could shift around to other fuels like nuclear power, which also don't emit any greenhouse gases. Renewables are non-emitting in terms of greenhouse gases. So there are lots of things that folks can do. A big piece of this plan, and that a lot of folks are hoping are going to play a big role in lowering costs and also getting some other benefits, is energy efficiency. To the extent that all of us can be more efficient in appliances, in the way we design buildings and there'll be less demand for any kind of electricity. And that's, in a way, the easiest way to reduce our emissions. But all of those options for the utility. And the utility, if it decides that it doesn't have good opportunities or it doesn't like the opportunities it's facing to reduce its own emissions, can go out into the marketplace and buy emission reductions from other folks who have found ways to reduce their emissions more cheaply.

Brian Stempeck: A lot of these utilities are going to be looking to new options, more natural gas, liquefied natural gas, renewable energy projects. At the same time though, in the Northeast, we've seen a lot of opposition to those projects. New LNG terminals have encountered a lot of resistance. The Cape Wind wind farm in Massachusetts also a lot of resistance there. Do you think there's kind of going to be a push that goes hand-in-hand with RGGI? Basically saying the Northeast is going to be more open to different kinds of energy projects as we try to reduce greenhouse gas emissions?

Judi Greenwald: I think there'll be some of that. But again I think this energy efficiency is going to be a key part of the solution because with energy efficiency you don't need to build new power plant. So you don't have those same issues. But certainly we're going to need power no matter what we do and we're going to have to build things somewhere. And I think it's going to have to be a public discussion about what are the kinds of sources that have the least impact on the environment and we'll try to focus on those. And I think there are a lot of people who may have trouble with wind power in certain areas, but might be okay with them in other areas. And I think we're going to have to have a conversation about where the best sites are for these different kinds of plants, as well as a good debate about what should be put where and what are the best choices for the region.

Brian Stempeck: The governors of Massachusetts and Rhode Island are two of the states that basically dropped out of this plan, saying that they felt the economic costs were going to be too high on the consumers and their businesses. What's your opinion on that? I mean how high are we going to see electricity rates go once this plan goes into effect in 2009?

Judi Greenwald: We think the impacts are going to be quite modest. The Regional Greenhouse Gas Initiative folks did extensive modeling work. The price forecasts that they have for any kind of increase are quite insignificant. At the most, their base case forecasts or their most, their average set of forecasts, they think it will be less than a penny a kilowatt hour difference. But I think there's sort of a range of costs and there are some who believe that under certain circumstances the price increases might be higher. There are others who think that actually you might get some household savings if the efficiency piece works as many think it will. That the prices of your electricity might go up a little bit, but you actually are going to save money because you'll be using less energy. So there is some indication that we're actually not going to see much impact at all. And in fact it might actually be a positive impact. So we think that from the economic side that there isn't really a big impact expected. But the plan actually assumes a number of, or includes a number of flexibility mechanisms that will keep costs down. And also has some mechanisms that if costs go higher than we thought that there'll be solutions. So for example, if prices hit a higher level than people think they will, then we'll actually wind up bringing in more what are called emission offset projects. This is an important part of the RGGI proposal. That you not only can get emission reductions at power plants, but also you can bring in emission reductions from projects outside the sector. For example afforestation, SF6, which is a very, which is a gas that has a very high global warming potential. And there's a lot of optimism that we'll bring in these projects and that we'll be able to achieve reductions more cost effectively and they'll be brought into this trading market, which as I mentioned earlier, utilities will be able to access that to reduce their emissions.

Brian Stempeck: At the same time though some of the business groups who have been lobbying in this proposal say they think the electricity costs could go up by as much as about 23, 24 percent. I mean isn't that a disincentive to people who are locating a business? I mean the Northeast also already has some of the highest home heating costs and electricity costs in the country. Every year we see members of Congress talking about more money for home heating because of high electricity, high energy bills there. Even if you're only talking about a 5 percent or 7 percent, whatever the estimate is, isn't that going to add to a problem that we already have in the Northeast?

Judi Greenwald: Again, it depends on how big the changes are. Certainly our view is that the changes from this program are going to be small compared to other kinds of changes. Also it's going to drive energy efficiency, which is going to help on all these fronts. So we actually don't see these big impacts. Also the Northeast has prospered despite having relatively high electricity rates. And certainly Governor Pataki and many of the other governors in the region see a future for themselves which is based on a green kind of economy using efficiency, renewables, various kinds of technologies and strategies that are good for the economy and good for the environment. So we don't see this as being a negative economic impact on the region. We see it as being positive and a way to have a future that's green in both senses, the way that GE starts to talk about this, that green is green. That you actually can both be economically prosperous and environmentally green.

Brian Stempeck: What about the concept of leakage? This is another one of the problems that's been raised with kind of a regional plan. The idea that a lot of these utilities could import power from other states, some of the Midwest states produce power and are already shipping it out, so it's basically towards the Northeast. Isn't that a problem that, you know, if I'm utility owner and I say well it's going to cost me a certain amount of money to build a wind farm. Aren't I better off just importing more from a coal generating plant in the Illinois that isn't subject to this?

Judi Greenwald: Again, it depends on the costs. If you can keep the costs down, which we believe RGGI is going to be successful in doing, then the difference, or the benefit of going outside the region is not very big. So if there's a very slight differential in prices, which is what we expect, you're not going to have much of an incentive to go outside the region. And RGGI has done its best to try to keep those costs down. So they are cautiously optimistic that they're not going to have a big leakage problem. However they're not sure, it's a complicated issue. And they have a plan now to study what's going to be going on with leakage. They're going to track power imports and power movements around the region. And they're going to come up with a set of possible options to deal with it if it turns out that it's a bigger problem than they thought. But the key is how big an economic impact you think this program is going to have? If it has a very large impact there's more of an incentive to import more power. If you think the impact is going to be modest, and certainly the RGGI folks have done their best to try to keep that impact modest, then there shouldn't be a lot of leakage. The flexibility of just a basic cap-and-trade program, where you can do or reduction at the lease cost. You can trade among various sources. The use of offsets which we think have a lot of cost effective opportunities that will become available. The efficiency piece. There's all kinds of reasons to be optimistic that the cost will not be prohibitive and certainly not be enough to incentivize movements of power that you wouldn't see otherwise.

Brian Stempeck: Couldn't somebody argue though that this plan kind of unfairly targets the utilities and the power companies? I mean I imagine there's going to be a lawsuit on this at some point. And what the utilities will probably say is why not go after the transportation sector? And why not go after some of the factories, the steel mills, the other major producers of greenhouse gases? Isn't that a major flaw in the program?

Judi Greenwald: Certainly if we want to solve climate change we're going to have to go after all of these sectors. Climate change is a very big problem. It's a big complicated problem. It comes from thousands of different kinds of sources. Certainly also the electricity sector is a big contributor. It is the sector that is the biggest contributor to US greenhouse gas emissions. So certainly one might consider biting off all the sectors at once and trying to go after everything at once, but it's not unreasonable to try to figure, well, I'll try this one sector at a time. And so the utility sector is not a bad place to start. Almost all of the states in the region that are working on this initiative are also poised to adopt the California Greenhouse Gas Standards for Vehicles, if they survive court challenge. So certainly these states are thinking about other sectors and utilities and transport, those are the two biggest. So certainly if you're going to try to go after this problem you want to start there. So I think the states are trying to do the best they can to go after the two biggest sectors initially. Also most of the states have fairly aggressive programs on energy efficiency in buildings. And buildings are also a big piece of the problem. It doesn't fall out nicely in terms of comparing to transport and electricity because a lot of electricity is used in buildings. The buildings are a very big component of this problem. So if you can have a program that addresses those three sectors you've gotten a big chunk of the problem. And so certainly starting there is not bad, but yes, we cannot only reduce emissions from the utility sector and solve this problem. It's going to have to be a broader program ultimately.

Brian Stempeck: How do you see the RGGI tying into some of the other state efforts? As you mentioned there's the West Coast plan in California to reduce emissions from cars and trucks. Other states, Washington and Oregon, have talked about reducing emissions. New Mexico now. Do you envision kind of other states basically taking on the RGGI approach as well? Is that the general idea here?

Judi Greenwald: Certainly there's a lot of interest in other states in either joining RGGI or doing a program of their own or approaching things somewhat differently. I think there's a diversity of views around the country in terms of how to go about reducing greenhouse gas emissions. But we think that what RGGI is doing is an important model and potentially an important way to get some lessons learned that will help these other states who are thinking either along those lines or different lines. We've talked about the California Greenhouse Gas Standard for Vehicles. We think this RGGI program is quite important. A couple of the other things are going on around the country that are important is that a number of states are starting sort of from square one where they're looking at all of their emissions. And looking at all of their opportunities and going through sort of a logical process and trying to see, well, can I do this? Can I do that? So there are a lot of states around the country who are looking at cap and trade, but also looking at other options for how they can reduce their greenhouse gas emissions. So you're going to get some tailored solutions around the country. And that's probably fine. The other thing that's going on that's very interesting is a lot of states have renewable portfolio standards, as do many of the states in the Northeast, but also around the country. There's quite a few of these, 22 states plus the District of Columbia have these. Those are generally not enacted just about climate change, but they have co-benefits for climate change and that's very important. They're going to push renewables in the electricity sector. So there's quite a bit going on around there. In the western part of the country, the Western Governors Association has something called the Clean and Diversified Energy Initiative where they're pushing renewables and other clean energy sources over the next decade. And that's going to be a pretty major initiative that they're working on now and they expect to announce their joint recommendations later this year, in just a few months actually. And then you have a lot of folks working on energy efficiency in a variety of ways, green buildings. A lot of states require their buildings to be what's called lead certified, which is a voluntary system of very high performing buildings that are highly efficient. A lot of states are upgrading their building codes. There's just quite a bit going on when we look around the country and we think all of it will contribute to reducing greenhouse gas emissions. And we'll hopefully produce lessons learned for other states who want to be active and hopefully ultimately for the federal government who we believe needs to act in order to get at this problem comprehensively.

Brian Stempeck: All right. Judi, we're out of time. Thanks so much for stopping by. We appreciate it.

Judi Greenwald: Thank you.

Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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