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It is insane to rely on a “market based approach” when there is huge “market failure”

RGGI is a small fee to pollute. It provides billions of dollars in subsidies, locks in emissions, and protects polluters from strict science based regulation for at least a decade.

I’ve written about fatal flaws in RGGI so many times now, I won’t repeat all that today.

In a future post, I will update the situation based on DEP’s response to public comments in the adoption document for the RGGI rule. 

Anyone interested in understanding the RGGI program should spend some time with that document, and ignore the Governor’s press release and media stenographers.

However, I have to respond to the Big Lies and spin that NJ Spotlight unconditionally printed today – worst first:

1. Compliance Cost To Large Energy Users – Dennis Hart, NJ Chemistry Council

Aside from failing to note the revolving door abuse of Mr. Hart, a former DEP Assistant Commissioner, NJ Spotlight printed this fact free whopper:

The multi-state initiative is a cap-and-trade program placing a tax on carbon emissions, which is passed on to utility customers. The DEP projects the tax will cost the average residential homeowner $9 more a year on their electricity bill. The cost for large energy users will be much higher, adding hundreds of millions of dollars to their annual bills, according to testimony from Dennis Hart, executive director of the Chemistry Industry Council.

The RGGI allowances are not a “tax”. They are selling for around $5/ton.

The Statewide CO2 emissions cap is 18 million tons.

DO THE MATH: The entire RGGI program – which is paid for by residential, commercial & industrial sectors – is less than $90 million.

HART IS OBVIOUSLY LYING. CALL HIM ON IT – DON”T PRINT THE LIE.

The economic reality is exactly the opposite of Mr. Hart’s Big Lie.

Big Industrial energy users are receiving hundreds of millions of $ in subsidies every year.

Instead of paying a paltry $5/ton RGGI allowances, they should be paying $122/ton DEP air pollution emission fees for CO2, just like other pollutants. (the FY 2017 $117/ton fee as increased to $122)

The RGGI allowance actually is a $117 per ton subsidy.

At 18 million tons, that’s a statewide $2.106 BILLION subsidy – large energy users receive a significant portion of that total statewide annual subsidy.

At minimum, the RGGI allowances should be set at the EPA’s Social Cost of Carbon, which, depending on interest rates and damage assumptions, range from $42/ton – $123/ton in year 2020.

The “external costs” are larger than the market price. That is a massive “market failure”.

So, the RGGI paltry $5/ton allowance is $37/ton – $118/ton  too low to reflect the true social costs of emissions- representing another multi-BILLION dollar subsidy to carbon polluters.

RGGI only covers CO2 emission from an energy production facility. RGGI does not address other greenhouse gas emissions, like methane, which has many times more global warming potential than CO2. RGGI also dos not consider lifecycle emissions, i.e. those that occur upstream of the energy production facility (extraction, wells, pipelines, distribution, processing, leaks and fugitive emissions, etc).

So the subsidy to big polluters – particularly fracked gas power plants – is even LARGER than $2.1 BILLION/YR.

2. “Leakage”

NJ Spotlight uncritically printed this half truth and spin:

Others, however, fear the state’s new rules will end up increasing greenhouse-gas emissions by favoring out-of-state power plants not subject to the carbon tax over cleaner and more expensive New Jersey units. The problem has been called leakage, an issue that must be addressed, according to energy experts and clean-energy advocates.

Without a leakage mitigation plan, today’s action will increase carbon dioxide emissions by 30 million tons from 2020 through 2030, which equates to almost two years of New Jersey’s annual electricity generation emissions,’’ said Adam Kaufman, executive director of the Independent Energy Producers of New Jersey….

In response to such criticism, the DEP noted another regulatory agency, the New Jersey Board of Public Utilities, has committed to starting a proceeding to address problems posed by “leakage.’’

What the Independent Producers, DEP and Spotlight fail to note is that the legislature mandated that BPU adopt what they call a “leakage mitigation plan” by July 2009.

If you really get into the weeds of the DEP adoption document, you san see how DEP subtly lied to cover up that BPU decade of failure. Just compare DEP’s response on bottom of page 27-28. While DEP correctly cited the law, in the statutory text they excerpted, they left out 2 critical things: 1) the legislative mandate “shall”, which they incorrectly describe as a legislative “authorization”; and 2) the July 1, 2009 compliance date. (DEP also misnamed the applicable law: it was the Global Warming Response Act, not the Global Warming Solutions Fund Act.)

Here is the full statutory provision, from the Global Warming Response Act (N.J.S.A. 48:3-87.c(2), where the legislature mandated (emphases mine)

“(2) By July 1, 2009, the board shall adopt, pursuant to the “Administrative Procedure Act,” P.L.1968, c. 410 (C.52:14B-1 et seq. ), a greenhouse gas emissions portfolio standard to mitigate leakage or another regulatory mechanism to mitigate leakage applicable to all electric power suppliers and basic generation service providers that provide electricity to customers within the State.  

The BPU held Stakeholder meetings in 2008 to do so, but never adopted a “greenhouse gas emissions portfolio standard”, BPU Order, or “another regulatory mechanism” to mitigate leakage.

DEP describes this history on page 28 of the adoption document: (the links work there)

Now, 10 years later, the leakage issue again is used by the energy industry to criticize RGGI.

But at the same time, the energy industry opposes any “greenhouse gas emissions portfolio standard” or “another regulatory mechanism” to mitigate leakage – including a “carbon price adder” – including on energy imports – like other states use to address market failures, prevent “leakage”, and internalize the external social costs of carbon. (e.g. see New York and California)

They can’t have it both ways.

But NJ Spotlight never calls bullshit on their energy industry friends and funders.

And despite DEP pointing the finger at BPU,  the “leakage” issue is not solely a BPU issue.

First, the law mandates that BPU adopt regulations “in consultation” with DEP.

Second, the Global Warming Response Act requires DEP to consider leakage in RGGI regulations:

3. A Market Based Approach Makes No Sense Under Conditions of Structural Market Failure

Numerous times, DEP describes and defends RGGI as a “market based approach”:

But the energy market reflects huge structural market failures, most significantly: a lack of effective competition, technological monopoly, and huge external costs of energy that are not reflected in the market price of energy (see this for a good technical discussion of SCC).

I will not go into all the economic theory and data on this here, but merely note that it is insane to rely on a market based approach under conditions of structural market failure.

The case for traditional “command and control regulation” is far more defensible and effective in driving real and deep emissions reductions than a failed “market based approach.

Ironically, the 1990 Clean Air Act’s acid rain program, often touted as a “market based approach” that worked, was in fact actually implemented via traditional site specific facility air pollution control permits and emission limits set by EPA, not by “markets” and trading.

4. The Man’s a Ho.

The DEP set the cap at 18 million tons/year, far too high to achieve the kind of deep and rapid emissions reductions that reflect the climate science.

But, a Mr. Bruce Ho of NRDC – see: Jim Hansen Takes On NRDC for background –  ignores all that in a delusional and sycophantic piece of spin, which is almost a verbatim statement that DEP made in the rule adoption document in response to criticism of the cap by environmental groups (see page 42 and compare to Mr. Ho’s.

Here’ DEP: (@ page 42)

The other rule establishes the initial carbon-dioxide cap for the state’s electricity generation sector at 18 million tons in 2020.

That is far less than what many argued the cap should be set at, with environmental groups initially pressing for a limit of 12.6 million tons. Anything less, they suggested, would result in less emission reductions and fewer dollars to spend on clean energy programs.

Bruce Ho, a senior advocate for the Natural Resources Defense Council, who came around to accepting the 18 million tons cap, said, “Ultimately, it was reasonable based on the data we were seeing in the energy sector.’’

Ho noted that the DEP committed to work with other states to evaluate and strengthen the RGGI program, an indication that the pollution cap might be tightened in the future. In any event, the governor’s office said the carbon dioxide emissions will decline by 30 percent through 2030.

The 18 million ton cap is NOT “reasonable” in light of climate science. Period.

5. Grazing in the Gas

Some environmental groups have pointed out that Gov. Murphy can not achieve his climate and clean energy policy goals while expanding fossil gas infrastructure. They have demanded that the Gov. impose a moratorium on new gas plants and pipelines.

Yet, far more than a moratorium is necessary, including the phase out and shut down of current gas plants and pipelines and garbage incinerators and sludge incinerators (all are multi-billion dollar stranded investments).

Regardless, DEP casually rejected anything along these lines, admitted that RGGI’s cap would not block new gas plants and pipelines, and went all in for gas. DEP wrote:

Any new plants constructed that are subject to the RGGI cap will increase demand for the RGGI CO2 allowances. This is likely to result in upward price pressure on all CO2 allowances, resulting in higher costs for fossil fuel generating sources. This is the core of RGGI’s program design. RGGI is not designed to reduce carbon emissions directly, but instead to make fossil fuel generation costlier to operate. (@ page 41).

At a paltry $4-$6/ton CO2, that ain’t gonna happen! RGGI is a small fee to pollute and it locks in emissions and protects polluters from strict science based regulation for at least a decade.

And I wonder if they cleared that statement with the Gov.’s office?

6. Delusions

Instead of telling the truth about the fatal flaws of RGGI and energy markets, calling for aggressive implementation of public transportation and current zero emission car mandates, and demanding new building codes and retrofit requirements, some so called “green groups” are actually seeking to expand RGGI to transportation and building sectors:

Nevertheless, clean-energy advocates see in RGGI a template for curbing other climate-warming emissions in other sectors, particularly the transportation sector. Late last year, the Murphy administration joined a regional initiative to reduce carbon pollution from transportation sources.

“The Transportation Climate Alliance is finally starting to address emissions from cars and trucks across state lines,’’ noted Doug O’Malley, director of Environment New Jersey, citing efforts to electrify the sector. “We are going to need to address those emissions more rapidly.’’

If it is insane to rely on a market based approach under conditions of structural market failure, it is delusional to call to expand failure.

I could go on – but I’ll stop here and close wIth a serious question:

What is it about RGGI that drives good people to lie so blatantly?