Trading blows in America

The United States’ first regional cap-and-trade programme is in peril, the latest victim of the country’s divided climate politics. Joan Bien reports.

The future of an environmental programme that aims to cut the carbon emissions of a swathe of the north-eastern United States by 10% over the next seven years is in doubt because one of the strongest members, the state of New Jersey, has said it plans to drop out of the group. Of all the participants in the scheme, New Jersey is the most heavily industrialised state and had stood to make the biggest gains. Its withdrawal is another reminder that the ultra-conservative campaign against action on climate change continues in the United States.

Chris Christie is the Republican governor of New Jersey. On May 26, 2011, he announced that his state will withdraw from the Regional Greenhouse Gas Initiative (RGGI), a cooperative trading venture between 10 north-eastern states, at the end of the 2011. This is a sharp reversal from Christie’s early enthusiasm for the programme.           

RGGI is a cap-and-trade network in which participating states have agreed to work together to reduce carbon-dioxide emissions by 10% by 2018. RGGI was the brainchild of the former Republican governor of New York, George Pataki, in 2003. It was fully implemented on January 1, 2009 and is scheduled to run until 2018. Each utility company in the region has the opportunity to reduce its emissions and then sell the unused remainder to other utilities in the group, which may need to exceed their own limits.

Companies that reduce their emissions are rewarded financially and, in theory, the proceeds are ploughed back into energy-efficiency projects, with the long-term goal of reducing the release of greenhouse gases and costs of future energy. In the end, ratepayers are supposed to see smaller bills due to the more efficient energy sources.

New Jersey’s planned withdrawal from the scheme – which looks almost certain to go ahead despite attempts from Democratic lawmakers to reverse the decision – is the latest in a string of blows to cap-and-trade ambitions in the United States. Although RGGI was designed to be the first in a series of similar programmes, including one at the federal level, Congress refused to pass the legislation intended to create a national cap-and-trade programme. No other regions have participated except for California. There, a similar programme is being challenged in the courts by supporters of a different method of reducing emissions – a carbon tax.

Another experiment in cap-and-trade was the Chicago Climate Exchange which included such giants as Ford, Bank of America, IBM and Intel. However, it closed down after seven years of trading credits. It had been the only national emissions-trading programme in the United States that required companies to meet certain greenhouse gas reduction targets.

Announcing New Jersey’s withdrawal from RGGI, Christie said that the scheme is not accomplishing its goals of reducing greenhouse gases. “It is a failure,” he said. He also complained about the associated costs that landed on customers’ energy bills. The plan that includes cap-and-trade “does nothing more than tax electricity, tax our citizens, tax our businesses, with no discernable or measurable impact upon our environment,” Christie said. The average bump in monthly residential electricity bills in the participating states was an extra 73 cents.

However, a new report from RGGI indicates that states involved in the scheme have actually seen significant financial benefits: for each dollar that goes into the programme, states have received US$3 to US$4 (19 yuan to 26 yuan) in benefits. In less than three years, US$700 million (4.5 billion yuan) has been generated by the participating states, while New Jersey has raked in more than US$100 million (648 million yuan) from the scheme.

Despite Christie’s claim that RGGI has been neither successful nor productive, he used nearly US$65 million of the proceeds last year to help balance New Jersey’s budget – money that, under the spirit of the programme, was meant to be pumped into energy-efficiency schemes. (The RGGI agreement presumed participants would automatically recycle the profits back into their own green-energy projects, with the goal of saving ratepayers money in the future. However, this element was not in the formal agreement giving each state the option of using the proceeds in any way they choose.)

If states are doing so well with RGGI, why is its future in jeopardy? Part of the answer lies in the country’s increasingly politicised climate debate and the growing strength of the Tea Party movement, an ultra-conservative force whose members widely oppose government action on global warming and question the validity of climate-change science, and which has been exerting powerful influence over national policy. When put to a vote in Congress last March, 237 Republicans voted against the statement that climate change is occurring and is due to human activities. Only one Republican voted in agreement.

Prominent in that political debate has been the Tea Party-linked lobby group Americans for Prosperity (AFP), an outfit founded by David Koch, co-owner of Koch Industries, a fossil-fuels conglomerate and the second largest privately held corporation in the United States. AFP has been actively trying to convince the governors participating in RGGI that the programme would, in the words of the AFP website, “drive up the costs of energy, increase the costs of goods and services and destroy jobs.”

David Koch and his brother Charles have donated hundreds of millions of dollars to candidates, politicians and other sources since 1997 in an attempt to block government regulation of fossil fuels and their toxic by-products.

For example, the brothers pumped US$1 million (6.5 million yuan) into last year’s campaign for Proposition 23 in California. The ballot initiative intended to nullify the state’s existing pro-environmental law, which aims to diminish pollution either through a carbon tax or cap-and-trade programme. Proposition 23 was sponsored by other oil companies, but Koch Industries, through AFP, saturated the local airwaves with pro-“Prop 23” television and radio ads. Nevertheless, the proposition suffered overwhelming defeat.

Besides New Jersey’s planned withdrawal, the states of New Hampshire, Delaware and Maine have also considered leaving RGGI, but state legislatures and governors have blocked such a move.

In spite of the campaign against cap-and-trade in the United States, there are still optimistic voices arguing that such schemes have an important role to play in tackling global warming – and that RGGI proves they can work. Abigail Dillen, an attorney with Earth Justice, a non-profit environmental group based in Washington, DC, said: “RGGI has raised money for critically important energy programmes, and the investments in clean energy that RGGI makes possible translate into significant cost savings for ratepayers. RGGI also illustrates that a cap-and-trade programme can operate in an orderly way without unduly burdening the power sector.”

She added: “We have to prevent political posturing from splintering the programme.”

RGGI is scheduled for formal review in 2012, when some of the emerging issues along with the effects of the economic downturn can be addressed. However, Dillen is certain that the programme is heading in the right direction. “If we are going to address the existential climate threat we face, we have to build on RGGI, not dismantle it,” she said. “RGGI can be a model elsewhere in the country and the world.”


Joan Bien is a freelance journalist based in California.

Homepage image by Luigi Novi shows New Jersey governor Chris Christie.