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New Jersey Withdraws from the RGGI Cap-and-Trade System


New Jersey Withdraws from the RGGI Cap-and-Trade System  

Tom Markowitz - Tuesday, May 31, 2011

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June 1, 2011


New Jersey Withdraws from the RGGI Cap-and-Trade System

 (c)Enerhope.com 2011


On May 26th, Governor Chris Christie of the US State of New Jersey announced that New Jersey will withdraw from the Regional Greenhouse Gas Initiative (“RGGI”) cap-and-trade system for greenhouse gases, by year’s end.  A video and transcript of Christie’s announcement can be viewed at



The RGGI website is a source of information on the history and mechanics of the RGGI cap-and-trade system.


The May 27th New York Times reported on reactions within New Jersey and the other RGGI states to Governor Christie’s decision.



Christie’s announcement caused considerable despair in the USA environmental community. A blog by Brad Plumer in the Washington Post asked the question, “Did Chris Christie just doom US Climate Policy?”



An editorial in the New York Times proclaimed, “Gov. Christie Abandons a Good Idea.”



Why did it happen? How could it come to this? Cap-and-trade was a huge success in reducing smog from electricity generators in the USA in the 1990’s. Why did New Jersey withdraw from cap-and-trade for greenhouse gases?



Governor Christie offered the following reasons for New Jersey’s decision:


According to Governor Christie:

First, the RGGI cap-and-trade system did not cause any reductions in emissions. The current price of an allowance in the RGGI system is the RGGI “floor” price, less than $2.00 per tonne.


Second, New Jersey’s carbon emissions are already below the goals for 2020 set out in New Jersey’s Global Warming Response Act. Reduced emissions have been due to increased use of natural gas, and the decreased use of coal.


Third, New Jersey has passed fourteen laws since the Global Warming Response Act was passed authorizing the state to join RGGI. These fourteen laws all accomplish the goals of promoting clean energy without the need to participate in RGGI at all.


Finally, Christie described the RGGI auction of allowances, transferring revenues to the state budget, as nothing more than a tax on electricity, with no discernable or measurable impact upon our environment.




Before we blame New Jersey’s withdrawal on lobbying and partisan politics, let’s examine the RGGI cap-and-trade system for clues to New Jersey’s decision.


The failure of New Jersey’s cap-and-trade efforts can be traced to some key mistakes in the RGGI system. What were these mistakes?


Mistake #1

RGGI allocated too many allowances.


The RGGI cap, the total number of allowances to be allocated, year-by-year, was based on a 2008 prediction of what the total greenhouse gas emissions from electricity would be for each of the 10 RGGI states in 2009-2014.


This cap was much too large.


The report, RGGI Emission Trends (Environment Northeast, June, 2010) states that carbon dioxide emissions from RGGI power plants in 2009 totaled 123,718,594 tons, 9% below 2008 levels, and 34% below the regional cap of 188,076,976 tons. The report concludes that RGGI emissions have decreased significantly due to cheap natural gas, increased non-emitting generation, more efficient use of electricity, and – to a lesser extent – economic trends and mild summer weather.



The effect of allocating too many allowances was to create an allowance market where the supply of allowances greatly exceeded the demand. To nobody’s surprise, the price of an allowance quickly dropped to the floor. The incentive to reduce emissions, either by capped facilities or by offset projects, disappeared. Capped facilities can meet all of their regulatory obligations by buying and retiring cheap allowances, instead of reducing their emissions.


Mistake #2

RGGI can’t change the caps.

Unfortunately, the RGGI caps cannot be changed, without a massive, multi-state legislative campaign.

The RGGI system, including state-specific caps, year-by-year, 2009 to 2018, was ratified in the State Assemblies of 10 states. The total number of allowances cannot be changed, without amending the totals in all 10 State Assemblies.


Mistake #3

RGGI allocates 90% of its allowances by auction.

How does a New Jersey fossil fuel electricity generator obtain allowances? The electricity generator must buy these allowances from RGGI Inc., the cap-and-trade operator, in a secret auction, or buy the allowances from a third party during the year. The auction revenues are paid to the State of New Jersey by RGGI Inc.

Auctioning of allowances adds to the price of electricity, and is perceived as an unfair and onerous tax by opponents of cap-and-trade. The electricity consumer must pay the price of electricity, plus the price of emission reductions, plus the auction price, plus the price of speculation by investors.


Proponents of allowance auctions reply that the state’s revenue from cap-and-trade is used to finance emission reduction projects.


However, in at least one RGGI state, some of these revenues have been used to pay down the state deficit, instead of financing emission reductions. On May 31st, Maria Galucci of SolveClimate News reported in Reuters news agency that in 2010, Governor Christie diverted about $65 million from carbon credit sales to help balance the 2010 state budget.



The alternative to auctioning of allowances is free allocation of allowances to capped facilities, according to a fair scheme, under a hard cap. The successful cap-and-trade programs which reduced smog gases from USA electricity generators in the late 1990’s featured free allocation.


Mistake #4

Lack of a vigilant, transparent Registry

Who bought the New Jersey allowances, during each of the RGGI secret auctions? How much did the buyers pay for these allowances? We don’t know.


RGGI lacks one of the absolute essentials of a cap-and-trade system with integrity: a vigilant, transparent Registry, to show the history and location of every allowance.


RGGI is currently administered by a not-for profit corporation, RGGI Inc., in New York City.


New Jersey investigative journalist Mark Lagerkvist, the editor of New Jersey Watchdog, was rebuffed by RGGI Inc. and by the New Jersey Department of Environmental Protection in his attempt to obtain the auction records.


“RGGI executive director Jonathan Schrag claims RGGI is not a “public body” subject to state open records laws – even though it’s a non-profit cooperative created and governed by the states of New Jersey, New York, Connecticut, Massachusetts, Maine, Rhode Island, New Hampshire, Vermont, Delaware and Maryland.”





Lagerkvist is currently suing the New Jersey Department of Environmental Protection for the information.




Allowances are public assets.

The public has a right to know what happened to them.


This lack of a Registry may cause serious problems in New Jersey’s attempts to extricate itself from RGGI.


Mistake #5

Auctioning of Future Allowances

Even though the RGGI allowance market has too many allowances in circulation, RGGI Inc. continues to auction allowances for future years. This increase in the total number of allowances further depresses the price of allowances, discouraging real emission reduction efforts.


There is a remote possibility that by 2018, greenhouse gas emissions by fossil fuel electricity generators in RGGI states will exceed the caps specified by the RGGI. (One possible scenario would be a mass closure of nuclear generating stations in the RGGI states, coupled with severe restrictions on “fracking” for natural gas.) Capped facilities would be able to meet their regulatory obligations by buying and retiring old allowances from 2011, instead of reducing their emissions. In such a scenario, the “cheap” RGGI allowances from 2011 would become extremely valuable.


How to Withdraw

Governor Christie spoke of New Jersey’s orderly withdrawal from RGGI by the end of 2011, a daunting task in the 10-state, interlinked RGGI system.


The RGGI was established with open trading of allowances among the 10 states.

The year-by-year emission caps for the 10 states were established by mutual agreement, and ratified in the 10 State Assemblies.

A fossil fuel electricity generator in (for example) Connecticut, can buy (for example) New York allowances, and retire them  to meet its regulatory obligations.  Some fossil fuel electricity generators in the other 9 RGGI states may be holding devalued New Jersey allowances.


If New Jersey withdraws, the year-by-year total RGGI cap will need to be reduced, to reflect the smaller number of emitting sites, and participating states. The RGGI total cap will need to be amended by each of the remaining 9 State Assemblies.


The purchasers who bought New Jersey allowances will find that their New Jersey allowances will be worthless, and will, no doubt, pursue the Government of New Jersey for compensation. Since RGGI does not have a public Registry, the State of New Jersey has no idea who bought the allowances in the auctions, or who owned them at the moment that Governor Christie announced the withdrawal.


At the same time, environmentalists will insist that the $65 million that Governor Christie diverted from the auction revenues to pay down the state deficit should be used for emission reduction projects.



Other RGGI States


Maria Gallucci, of SolveClimate News, reported on May 23rd that New Hampshire, Delaware, and Maine have decided to stay in RGGI for now, despite some wavering in their enthusiasm.




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