Pollution drop devalues permits

ALBANY -- Inflation has hit a multi-state program to fight climate change by curbing greenhouse gas emissions from power plants.

The Regional Greenhouse Gas Initiative, begun in 2008 to curb emissions of carbon dioxide through state auctions of pollution permits, is facing a glut of devalued permits caused by a rapid, unexpected drop in carbon dioxide emissions.

"Everyone is swimming in RGGI permits," said Jackson Morris, an analyst with the Energy and Climate Center at Pace Law School in White Plains. .

RGGI is a cap-and-trade program involving New York and nine other states. Permits are auctioned by the states for power plants to cover emissions of CO2, a known greenhouse gas that an international scientific consensus identifies as causing man-made climate change

Money raised by RGGI permits funds state alternative and energy conservation programs, and the cost of permits encourages power plants to reduce CO2 to save money.

The glut stems from where the cap was set in 2005 -- at about 188 million tons of CO2, a figure that turned out to be well above current CO2 emissions, which steadily declined from 185 million tons in 2005 to 123.7 million tons in 2009.

Several factors are responsible for CO2 slump, including reduced demand for power during the recession and during milder weather; an increase in cleaner-burning and low-cost natural gas power plants and closing of dirty coal plants; and more electricity from non-CO2 sources like nuclear, wind and hydro, according to a report by the New York State Energy Research and Development Authority. RGGI states now are failing to sell millions more CO2 permits than power plants actually need. As demand has sagged, permit values tanked, from more than $3 a ton in mid-2009 to just $1.86 this year. Even at that price, there are fewer buyers. At the last two auctions in September and December, about a third of permits remained unsold. In the eight auctions before that, nearly 100 percent of permits sold.

Morris said power plants are sitting on piles of cheap accumulated permits -- possibly an entire year's worth. He warned that imperils further CO2 reductions, which was the program's ultimate goal.

Starting in 2015, RGGI calls for a 10 percent cut from the 188 million ton CO2 cap to about 170 million tons by 2018 -- a figure well above current emissions, rendering RGGI ineffectual.

When RGGI was created, power plant owners argued the cap should be high, to prevent a permit shortage that could raise prices and cause electrical rates to jump.

While Gavin Donohue, director of Independent Power Producers of New York, agreed there is a permit glut, he said reducing the CO2 cap and permits available for sale would be a bad idea.

He said the state's lawmakers should ''look at RGGI and see if it has been useful at all," adding, "RGGI has morphed itself into a program where revenue is being used for other purposes, like deficit reduction or worker training.