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Murphy RGGI “Cap” Would Lock In Huge Subsidies To Major Carbon Polluters

Murphy proposed RGGI cap translates into a $2.33 BILLION annual subsidy

RGGI allowances, cap, and price constitute a license to pollute

Murphy DEP ignores climate science and NJ law

We’ve written frequently about huge flaws in RGGI, but today I want to take on a basic lie at the heart of the RGGI program.

Here it is, out of the mouth of a NJ environmentalist: [WHYY story]

Environment New Jersey president Doug O’Malley welcomes New Jersey’s reentry into the program.

“You’re finally putting a thumb on the scale and putting a price on carbon that’s being emitted from fossil-fuel power plants,” he said. “You’re creating a market to reduce that pollution, and creating a revenue stream to invest in clean, renewable energy solutions.”

I like Doug, but he is just dead wrong here.

1. RGGI does not “put a price on carbon”

RGGI does not put a price on carbon.

Just the opposite: it locks in below market allowance rates and provides regulatory certainty, thereby providing huge subsidies to major carbon polluters.

Let me offer an analogy: the benefits of RGGI to corporate polluters are similar to a renter in a rent controlled 3 bedroom apartment on the upper east side of Manhattan – with views of Central Park – that pays $500 per month rent for a guaranteed 20+ year period.

The actual market rent for that apartment is probably 25 times higher (or greater).

The most recent RGGI allowance auction clearing price was a paltry $5.35 per ton (and that’s a 4 year high, it will decline after the winter).

In contrast, DEP mandates air pollution emission fees, for far less damaging pollutants than carbon, of $122 per ton (the fees were just increased).

RGGI carbon polluters pay 22.8 times less than DEP emission fees for other pollutants, like SOx, NOx, et al.

Gov. Murphy DEP’s proposed NJ RGGI “cap” is about 20 million tons, so polluters would pay about $107 million per year.

In contrast, if they were required to pay just the same as far less damaging air pollutants, the annual cost would be  $2.44 BILLION – so the Murphy proposed RGGI cap translates into a $2.33 BILLION annual subsidy to the most harmful polluters!

Similarly, summing up all the negative economic impacts from climate change, economists have calculated the “social costs of carbon” (SCC).

EPA estimates the SCC at $105 per ton (in 2015), escalating to $212 per ton in 2050. And EPA is conservative. Other leading climate economists have estimated the SCC to be far higher, over $300 per ton.

Again RGGI polluters pay far, far less than the true cost of carbon- just like that 3 bedroom Manhattan apartment for $500 per month.

There is no RGGI price on carbon and there is no functioning market for carbon.

What we have here is NOT a market. It is what economists call massive market failure due to “externalities”, i.e. the failure of the market price of energy to incorporate the real costs of carbon.

This massive market failure is compounded by regulatory failure – so we have the worst of both worlds: market failure exacerbated by weak regulation.

The reality of RGGI is way beyond traditional “regulatory capture” and represents the State intervening on behalf of major corporate polluters to subsidize them and protect them from real market forces and strict regulation (like a total phase out of carbon fuels, something the scientists are demanding).

And the major carbon polluters are guaranteed these huge subsidies for 20 years, eliminating any market or regulatory risk.

The elimination of risk in an of itself is a huge economic benefit that can be quantified – I have not done so, but it is a huge economic subsidy.

Again by analogy, it would be like a rent control law that locked in the $500 per month Manhattan rent in perpetuity. The renter would never face a rent increase and could plan accordingly.

2. The Murphy DEP proposed RGGI “cap” ignores climate science and NJ law

The head of the Murphy DEP air pollution program basically openly admitted that the proposed RGGI “cap” was based, in part, on costs, and that it did not reflect climate science and the deep GHG emissions reduction goals of the NJ Global Warming Response Act: WHYY story:

He [DEP’s Baldauf] pointed to the juggling act between reducing emissions and being fair to consumers.

“You need to have a cap that does its job, which means it’s stringent, like all the other RGGI states have, and it drives down greenhouse gases. But in consideration, you also need a cap that is fair to the ratepayer and is not something that becomes too burdensome.”

DEP has no legislative authority to set a RGGI cap based on ratepayer or economic concerns.

In proposing a RGGI cap, by their own statements, DEP has “balanced” GHG emissions reductions against cost and ratepayer impacts.

In addition to having no legislative authorization, I guarantee that DEP has no technical basis for this “balancing”, i.e. no credible cost-benefit analysis.

DEP is subject to the Global Warming Response Act and the deep emissions reduction goals of that Act, but DEP has ignored that law in setting the RGGI “cap”.

In addition to lacking any credible technical or economic basis for setting the cap and ignoring NJ law, DEP’s proposed RGGI cap also ignores climate science, which strongly recommends even deeper and faster GHG emission reductions than the NJ GWRA 80% by 2050.

Finally, DEP still has not finalized and adopted the original 2009 GWRA Report and still lacks any plan to achieve the GHG emissions reduction goals of the GWRA.

Such a plan would expose the RGGI program for the fraud and huge polluters’ subsidy that it is.

[End Note: Doug O’Malley use of the “thumb on the scale” metaphor was a very poor choice.

That metaphor connotes cheating and ripping off people: e.g. the butcher with his thumb on the scale.

So, it plays right into the right wing ideology that government – not corporations – are corrupt and are cheating people and driving up energy costs.

It also plays right into the market fundamentalism and right wing myth that government’s role is not to pick winners and losers, but to let the so called “free market” decide. According to these folks, a government thumb on the scale distorts markets and leads to inefficient outcomes.

Ideas and words matter. Greens gotta do better than this.

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