Questions abound over greenhouse gas initiative

While New Hampshire lawmakers make up their minds about participating in the Regional Greenhouse Gas Initiative, the larger states already participating in the initiative are preparing for the first quarterly auction of a limited number of emissions allowances, which give the owner the authority to emit a certain amount of greenhouse gases.

At this point, the question isn’t whether New Hampshire should take part in the initiative – known as RGGI — but how it should do so, and perhaps when it should begin participating. Unlike most of the Northeastern states in the region that have agreed to this first-in-the-nation cap-and-trade system for greenhouse gases, New Hampshire’s participation is contingent on legislative action, which gives a chance for big players like Public Service of New Hampshire, the Business and Industry Association and a host of environmental groups to have their say on the matter.

While there’s a general consensus that RGGI is needed to reduce greenhouse gas emissions, and that the initiative will result in an increase in electric rates to some degree, there are still questions about the size of the reduction and whether the increase in electric rates will be offset by either rebates or conservation, resulting in less usage and thereby lower costs.

“You have to differentiate between rates and bills,” said Dick Henry, executive director of the Concord-based Jordan Institute, which focuses on environmental issues, particularly those relating to climate change. “You can save a good deal more through efficiency than you would by keeping rates down.”

That’s the theory, at any rate. What the BIA and PSNH are worried about is the practice. They are concerned that in this free market free-for-all, speculators might drive the price of allowances sky-high, causing the price of electricity to fluctuate wildly, or that they simply will be sold out, which could result in brownouts.

“If they shut down, what is the impact to the region’s electricity, on our whole economy?” said David Juvet, vice president of the BIA.

“We are committed to support RGGI,” said Martin Murray of PSNH. “We’re concerned about the details.”

Questions remain

It remains to be seen whether those details are negotiated or fought out on the floors of the New Hampshire House and the Senate.

Here are some of the details:

• In 2005, 10 Northeastern states agreed to limit carbon dioxide emissions to 188 million tons – roughly the region’s current emissions – with each state getting a certain allocation.

• New Hampshire’s budget is 8.6 million tons which translates into 8.6 million “allowances.”

• Each state has to maintain its level through 2014, and then reduce it by 10 percent by 2018.

• Allowances are awarded quarterly, and can be banked indefinitely. Companies can either earn them by reducing their carbon-based admissions, or they can purchase them on the free market, where they can be bought and sold like any other commodity.

• According to the ground rules, a quarter of the credits have to be auctioned off, and can be either rebated to consumers or used for conservation purposes.

There are a few safeguards in place. If the price of credits rises above $7, utilities can go outside the region and buy 5 percent of their allowances nationally. If increase is above $10, they can buy as much as 10 percent internationally.

Otherwise, the state has wide latitude. How much should be auctioned off? Should there be a cap on the auction price? How much of the money should go to conservation and rebates, and should those rebates be available generally or only to the poor?

Thus far, almost all of the states are auctioning most of the allowances off, and most of the money is going to conservation.

The first auction has been scheduled for June 2, with New York, New Jersey, Connecticut, Massachusetts and Maine ready to participate, according to Greenwire, the Web-based environmental news service that has been following RGGI on a regular basis.

The fact that the big states are on board has given more urgency to New Hampshire’s participation. (New Hampshire is one of the last states to board the RGGI train, but Delaware is at a similar step in the process, and Pennsylvania and the District of Columbia aren’t even close to implementing the agreement, according to Greenwire).

Give and take

RGGI will drive up regional electric prices, no matter what the Granite State does, so we might as well get the money for conservation, which, in the long term will offset rate increases even more than rebating, according to a University of New Hampshire study authored by economist Ross Gittell.

This is especially true when it comes to that they will either buy their energy regionally or rely more on non-carbon-based generation, such as hydro.

PSNH, however, does rely on local carbon-based fuel, so implementation of RGGI is expected to increase its rates. While RGGI will increase regional rates 0.7 percent (averaging 72 cents a month) next year and 2.9 percent ($2.88 a month) in 2018, it will (if New Hampshire participates) increase PSNH customers’ rates by 1.2 percent ($1.17 a month) in 2009 and 4.4 percent ($4.44 a month) by 2018.

While a few dollars per month extra over a decade won’t make much of a difference to most customers, PSNH and the BIA are concerned that costs will be much higher than that.

First, unlike existing cap and trade systems for other pollutants – such as for sulfur dioxide — there are no end-of-stack pollution control methods currently available that will reduce carbon dioxide emissions. Utilities now only are able to reduce emissions by switching to alternative fuels, investing in greater production efficiencies and funding supply-side conservation.

PSNH has already taken those steps to some degree, when it substituted wood at one of its generators at the Schiller Station in Portsmouth and by lowering its emissions in response to a pre-RGGI New Hampshire carbon emissions control law.

The utility would get some credit for those efforts under RGGI, though the exact amount is still to be determined

But thanks to growing demand, conservation can only go so far, and utilities will have to be forced to buy allowances.

And that’s where the fear of speculation comes in. Anybody, not just utilities, can bid on these allowances. Brokers could gobble them up and resell them up on the market. Environmentalists can bid on them and retire them. Even utilities that use non-carbon-based fuel, like the owners of nuclear power plants, could sit on them, driving up the price for their electricity.

But what if there aren’t even enough allowances around? PSNH could be forced to lower output, resulting in electricity shortages that could disrupt the state’s economy, the utility says.

But Henry and other RGGI proponents think that such doomsday scenarios are unlikely. First, since PSNH has already been reducing carbon emissions, there will already be a cushion available, meaning that it might not even need allowances during the first few years, resulting in more of a glut than a shortage. And that cushion could be banked against shortages in future years.

But Murray points out, and Henry acknowledges that exactly how many allowances PSNH will be awarded has yet to be determined.

Second, the proponents say, the sheer number of allowances involved, and the uncertainty, will scare away speculators with enough capital to monopolize them.

Third, the money going into conservation and renewable energy generated by the sales of allowances will reduce output, which not only would lower consumers’ utility bills, but further enable utilities to exceed their goals and generate allowances which they can bank for future use.

Still, the BIA and PSNH are concerned that New Hampshire legislators might raid that conservation fund in the future, thwarting that crucial aspect of the RGGI program. They also caution that there is a limit to how much saving can be achieved by conservation, or whether such programs can absorb such a hefty pot of cash.

Finally, there are the $7 and $10 price triggers that allow utilities to go outside the region, and even outside the country, to secure additional allowances.

This might not be enough, says PSNH, which wants additional safeguards, such as those that are being put in place by other states. Murray points to Maryland, which would cap the price at $7 for the first three-quarters of the year, and Maine, which would rebate any auction dollars exceeding $5 an allowance to consumers. New Jersey also would allow utilities to invest in renewable energy sources so as to not be so dependent on its carbon-based generation.

“We are not against participating in RGGI,” said Murray. “But this directly impacts the wallets of businesses and residents, and if we are going to do it, we want to do it in a way that can avoid the most amount of pain.”