Cap-And-Trade Plans Meet Up With Greenhouse Gas Skeptics



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A few weeks from now, on November 2, New Mexico's Environmental Improvement Board is scheduled to vote on proposed regulations setting in motion a cap-and-trade program for greenhouse gases. It is likely to approve them. That same day, voters will elect a new governor. She will object to the whole idea.

The state board — its members appointed by outgoing Democratic Governor Bill Richardson — has been considering regulations to lay the groundwork for New Mexico's participation in the cap-and-trade program envisioned by the Western Climate Initiative, an effort involving seven states and three Canadian provinces to reduce carbon emissions. 

It has been a hotly contested proposal, and both gubernatorial candidates, Democrat Diane Denish and Republican Susana Martinez, oppose the new regulations. Martinez, who holds a slight lead in the polls, said in August that she doubted that human activity is fueling climate change; Denish believes cap-and-trade would put New Mexico at an economic disadvantage with its neighbors.

Even so, the environmental board appears likely to give the go-ahead, launching the process for creating a market in emissions allowances — and leaving it to the next governor to decide whether or not to dismantle it. "Things that are said on the campaign trail aren't always the same thing that happens when someone's in office," says Jim Norton, director of the Environmental Protection Division of the state's Environment Department, and a prime mover behind the proposed regulations. "So it remains to be seen what the actual policies of the new governor will be."

Cap-and-trade is essentially a way for the government (state government, up to now) to cut carbon emissions by mandating a limit on the amount of pollution that can be spewed into the atmosphere (the cap). Industries can negotiate among themselves, with investors and with the government to find ways to exchange their pollution allowances to bring combined emissions into compliance (the trade). The system essentially makes it possible for the private sector to purchase the right to pollute while maintaining the strict government-imposed emissions cap.

Around the country, the three regional greenhouse gas accords- WCI , the western states compact that New Mexico is part of; the Northeast's Regional Greenhouse Gas Initiative, or RGGI ; and the Midwestern Greenhouse Gas Reduction Accord ( MGGRA )-have found themselves unlikely holders of the political spotlight this year, thanks to the failure of a cap-and-trade plan to pass Congress. Governorships and state legislatures currently in the hands of political leaders who support the regional agreements will belong to newcomers, some with dramatically different ideas, and opponents of the whole scheme see the upcoming election as a watershed.

"I think the gubernatorial elections will change the political landscape in a lot of these states, with new governors coming from a free-market perspective," says Clint Woods, of the right-leaning American Legislative Exchange Council. "New governors tend to have a longer-term perspective, and they'll see that the upcoming deadlines for reducing greenhouse gases will cause economic hardship and stall the recovery. So I think they'll take a real hard look at their states' involvement."

Making money

Yet when you get down to the details of the three regional accords — each of which is different, and in a different stage of implementation — it's clear that while the compacts are entering a politically unsettled period, they may well prove more robust than their critics would like. The Western and Midwestern agreements are broad enough that, even without cap-and-trade, their member states can still make progress on reducing greenhouse gases. And in the east, RGGI is working with the decided advantage that it is already bringing revenues into state coffers. 

That is because RGGI was the first of the three accords to actually implement a cap-and-trade regime, although unlike the other two, it encompasses only emissions related to electricity production. Among RGGI's 10 member states — the six New England states, plus New York, New Jersey, Maryland and Delaware — there is a possibility that the elections could produce one or more Republican governors overtly hostile to the accord.

In Maine, Republican candidate Paul LePage called global warming science "a scam," and signed the "no climate tax pledge" put forth by Americans for Prosperity, a conservative public policy group that has been pressing to dismantle the regional trading program; the most recent polls show LePage in a dead heat with Democrat Libby Mitchell. In Massachusetts, Republican Charlie Baker, who is one of two candidates challenging Democratic incumbent Deval Patrick, has said that he is uncertain about the state's continued participation in RGGI and needs to study it. In New York, Republican Carl Paladino, who is trailing Democrat Andrew Cuomo in recent polls, has called global warming "a farce."

Yet in the RGGI states — unlike in New Mexico — the language mandating each state's participation is statutory, passed by the various legislatures. "Withdrawing from the program is not just stroke-of-a-pen material by a governor," notes Seth Kaplan, of the Conservation Law Foundation.

And convincing a legislature to reverse itself may not be easy, since the RGGI states have seen tangible benefits from the program. Overall, there have been nine auctions held by RGGI since 2009, in which electric utilities and some investment firms have bought emissions allowances. And those auctions have raised some $729 million for a range of emissions-reduction and energy-efficiency programs — benefiting both homeowners and industrial users — as well as financing an occasional raid to balance a state's general budget.

In New Jersey, where Republicans in the Legislature have introduced bills in each house to withdraw from RGGI, Republican Governor Chris Christie used RGGI proceeds to subsidize the development of the state's offshore wind program; under pressure from the right, he has remained silent about his stance on RGGI itself, but he is a strong proponent of offshore wind power.

"It's hard to imagine the process by which a governor would say that his state will no longer require allowances for [an electricity] generator," says Phil Giudice, commissioner of Massachusetts' Department of Energy Resources. "Those companies have already purchased allowances and now the allowances are going to be valued at zero? They won't be happy. And all those things funded by RGGI — are they now going to be funded out of the general state budget?"

Meanwhile, in the West, WCI has developed limited momentum of its own, although it has had its share of bumps along the way. Of its seven U.S. member states, only two — California and New Mexico — have made tangible progress toward creating a cap-and-trade regime. The governors of Arizona, Utah and Montana have refused to pursue it; the governors of Oregon and Washington State proposed enabling legislation, but were rebuffed by their legislatures.

This leaves the future of WCI's cap-and-trade program unsettled. An initiative backed by out-of-state oil and gas companies to suspend California's landmark global warming legislation, AB32, would have the effect of ending the state's participation in cap-and-trade if it passes. Meg Whitman, the Republican candidate for governor, has proposed a one-year moratorium on the law's implementation if she wins.

California rules

Because of its size, California is the linchpin of WCI's cap-and-trade program. "I don't think California can do it by itself," says Janice Adair, of Washington State's Department of Ecology, "but I wonder if anyone can do it without California." New Mexico's proposed regulations explicitly say that the state won't move forward without other U.S. partners. The three Canadian provinces that also are part of the agreement — Ontario, British Columbia and Quebec — already have passed enabling legislation and might create a market without any U.S. participants, but they're remaining non-committal.

Yet cap-and-trade was always envisioned as simply one part of WCI's emissions-reduction efforts, and at a September meeting in Montreal its members decided on a "portfolio" approach — in essence, to focus on additional ways of reducing greenhouse-gas production. "No matter how the elections go, we want to be able to present an agenda that is broad in scope and therefore appealing whether or not a new governor wants to work on cap-and-trade," says Patrick Cummins, who staffs WCI for the Western Governors Association. "While WCI is still committed to cap-and-trade, if a state or province is not interested in it, that's not a barrier to participating in WCI, as long as they are committed to taking action on climate change."  

Indeed, even states with no stomach for WCI's cap-and-trade plan — including Arizona, where Governor Jan Brewer's executive order ending participation in cap-and-trade also reaffirmed the state's commitment to remaining part of WCI — intend to continue with the accord's broader discussions, especially as they relate to clean-energy development. 

Still, there is no question that cap-and-trade remains the heart of the regional efforts to reduce carbon emissions. That's why the battles over the drive to get it up and running in WCI and MGGRA are likely to remain contentious — although calculations will undoubtedly change should California and the Canadian provinces establish a working market. Meanwhile, all three compacts are working together on developing other protocols, such as low-carbon fuel standards. And RGGI isn't showing any signs of backing off: Its impact on carbon prices so far has been minimal, so its members are deep in the weeds of figuring out how to improve both its operations and its impact.

In the end, says Massachusetts' Phil Giudice, "We're not necessarily going to have leadership from the federal government. So it is going to be about the states leading on these issues."


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