Regional Greenhouse Gas Initiative

RGGI: A tax is a tax is a tax

by Marlo Lewis on December 4, 2009

in Global Warming

President Obama and other cap-and-trade advocates assured us they had ”learned from Europe’s mistakes” and would auction all emission permits rather than hand them out at no charge to favored constituencies. Then the sausage factory known as Congress took over. The Waxman-Markey cap-and-trade bill proposes to dole out 85% of emission permits to preferred interest groups during the first several years of the program.

What explains this flip-flop? 100% auctioning turns a cap-and-trade program into an energy tax by another name. Actually, whether the permits are auctioned or not, cap-and-trade still raises consumer energy prices, but when permits are auctioned cap-and-trade is nakedly a revenue raiser for the bureaucratic sector. So Waxman-Markey drafters got cute and decided to phase in the auctions over time, on the theory, apparently, that we’re dumb as proverbial frogs in a pot of slowly boiling water and won’t notice being taxed by increments.

Another of the supposed “mistakes” Europe made in setting up its emissions trading system (ETS) was to “over-allocate” emission permits. This crashed the market for energy ration coupons, undercutting any incentive to reduce emissions or invest in lower-carbon energy technologies.

Well, ten Northeastern states, keen to demonstrate their climate leadership and solidarity with the Kyoto Protocol, got together and enacted the Regional Greenhouse Gas Initiative (RGGI), a multi-state cap-and-trade program in which almost all carbon permits are auctioned.

However, as Greenwire reports today (subscription required), “RGGI emission prices continue to slide in sixth auction”: 

Prices slid again in the Regional Greenhouse Gas Initiative’s (RGGI) sixth auction for 2009 emissions allowances to $2.05 per short ton of carbon dioxide equivalent, the Northeast pact announced here today. The previous auction netted $2.19 per ton in September.

More importantly, ”… 2012 allowances fell slightly in the Wednesday auction, to $1.86 per ton, from $1.87 in September.”

Why so?  “There’s way too much supply, and there is no demand,” said Tim Cheung, an analyst with New Energy Finance. “You’re going to have these excess allowances that will continue to carry over to future years, which is why we think that prices will remain depressed going forward.”

RGGI avoided one of Europe’s “mistakes” only to repeat another. Among other things, the plunge in permit prices means RGGI is doing and will do squat to reduce emissions.

So even when politicians auction permits, rather than hand out them out as freebies, they can still run a system as ineffectual (in terms of its stated purposes) as Europe’s ETS.

Which raises an obvious question: Besides giving New England politicos a platform on which to preen and prate about their efforts to save the planet, what is RGGI good for?

Raising taxes, of course. Greenwire reports that:

About 31 million allowances were sold this week, mostly to energy producers facing RGGI compliance rules and secondary market traders. Participants bought 28.5 million 2009 allowances and just under 2.2 million 2012 allowance futures, with cash-strapped state governments garnering $61.6 million [emphasis added].

All told, RGGI has raised about $500 million for state governments in auction proceeds. But here’s where the story gets really interesting. “The 10 RGGI state governments are supposed to use auction proceeds to fund renewable energy or energy efficiency initiatives, but governments are using that cash to plug holes in their budgets.” 

Greenwire mentions two examples:

Earlier this week, the research firm Point Carbon pointed to New York as the latest to cheat, with Albany passing a bill that will allow it to tap $90 million of RGGI auction proceeds to help fill its $5 billion budget shortfall. Today, New York’s Department of Environmental Conservation said the state drew $25.4 million in Wednesday’s auction.

Maryland became the first state to break ranks and use RGGI cash for a project not related to clean energy promotion. In April, Bloomberg reported that Maryland’s Legislature voted to use $70 million of its auction revenue for a rebate program designed to help low-income residents pay electricity bills.

It’s just like my colleague Myron Ebell likes to say. “There are three things you need to know about cap-and-trade: It’s a tax, it’s a tax, it’s a tax.”

More on Secy. Chu’s convoluted climate economics

by Marlo Lewis on November 5, 2009

in Global Warming

In recent testimony before the Senate Environment and Public Works Committee, energy secretary Steven Chu makes a convoluted case for S. 1733, the Clean Energy Jobs and American Power Act, a.k.a. the Kerry-Boxer cap-and-trade bill.

Chu argues roughly as follows. Global investment in wind turbines and solar panels could reach $3.6 trillion by 2030. China is investing heavily. If we don’t ramp up our investment in “clean tech” products, we’ll be left behind, become increasingly dependent on foreign producers, and China will eat our lunch. The key to growing the U.S. clean-tech sector is to “put a price on carbon” — establish a “cap on carbon emissions that ratchets down over time.”

This is poppycock, as I explain today on MasterResource.Org, the free-market energy blog. 

Yes, China is investing heavily in solar panel and wind turbine manufacture, but China does not cap carbon. Also, only a small fraction of China’s production of solar photovoltaic generators — 20 megawatts out of 820 megawatts produced in 2007 — is for China’s domestic market. So capping domestic carbon emissions is not a prerequisite to success in exporting clean-tech products, nor is having a large domestic market for such products. The experience of the very country Chu spotlights as model and threat rebuts rather than supports the case he wants to make.

A key point Chu completely ignores is that, apart from certain niche markets, “clean tech” products consume more wealth than they create. That’s why they cannot “compete” without benefit of market-rigging mandates, subsidies, and penalties levied against fossil energy.

A fresh example of this inconvenient fact comes to us today from the great state of Massachusetts, home of Sen. John Kerry, chief sponsor of S. 1733, and Rep. Ed Markey, co-sponsor of the House companion bill, H.R. 2454, a.k.a. Waxman-Markey.

The Boston Globe reports that, ”A little more than a year after cutting the ribbon of a new factory in Devens built with $58 million in state aid, Evergreen Solar has announced it will shift its assembly of solar panels from there to China.”

Evergreen received “$58.6 in grants, loans, land, tax incentives, and other support,” says the Globe. Yet, ”Through the first nine months of this year, Evergreen lost $167 million, compared with $33.6 million for the same period last year.”

What would Chu have to say about this? Evergreen is not losing money because there’s no cap on carbon. Massachusetts is one of several states participating in a cap-and-trade program known as the Regional Greenhouse Gas Initiative (RGGI).

Why is Evergreen expanding operations in China?  ”Lower costs.” Such lower costs include lower-cost energy. To repeat, China does not have cap-and-trade; it does not put a price on carbon.

Now, I’ll wager that Evergreen would be losing money even if Massachusetts were a Kyoto-free zone. But we may surmise that Evergreen would not shift its operations to China if China’s economy were carbon-constrained.

Chu should at least consider the possibility that pricing carbon would vitiate what little competitiveness the U.S. clean-tech sector has. Low-cost energy is a source of competitive advantage, as China powerfully demonstrates. By increasing energy costs, cap-and-trade would make all U.S.-based manufacture less competitive, including companies specializing in clean-tech products.