New Hampshire considers whether to strengthen RGGI cap-and-trade program

New Hampshire's participation in the carbon cap-and-trade system called RGGI survived a near-death experience in the state Legislature last year, and now the state needs to decide whether it wants to double down on the program to make it tougher.

"We are referring to this as RGGI 2.0, informally," said Michael Fitzgerald, administrator of technical services bureau at the state Department of Environmental Services, who oversees the state's participation in the nine-state Regional Greenhouse Gas Initiative.

RGGI, a cap-and-trade program for carbon emissions by power plants, has put forward new guidelines. They sharply decrease the amount of carbon that utilities can release into the atmosphere, as well as making other changes. One major change would allow certain forestry projects to be counted as an offset to carbon pollution, because growing trees removes CO2 from the air.

"In a state that's 80 percent forested, that obviously could have a potential economic impact," said Fitzgerald.

Each RGGI state, including New Hampshire, has to decide whether to follow these rules and stay in RGGI. States have some options; there needs to be some consistency from state to state for the program to work.

Several bills have been proposed to amend the program and will be coming up in the state Senate and House in coming weeks.

Under RGGI, utilities must buy allowances for each ton of carbon they emit while creating electricity. They buy these allowances in quarterly auctions on a controlled market; the money is then used by participating states, mostly to pay for energy-efficiency programs.

New Hampshire has received about $42 million during its participation, of which $39 million has been given out in grants and loans to make buildings more energy efficient.

The biggest change in RGGI is an immediate reduction in the total amount of carbon dioxide that power plants can release into the air, from 165 million tons throughout New England, to 91 million tons, a 45 percent cut. This so-called "RGGI cap" is proposed to decline another 2.5 percent each year from 2015 to 2020.

It is the first time since RGGI started in 2009 that such a revision has been proposed.

RGGI is the nation's first market-based regulatory program designed to cut greenhouse gas emissions. California is instituting a similar program; Europe has had one for close to a decade. Cutting the RGGI cap would address one fact that supporters call a shortcoming in RGGI: The rock-bottom price of carbon offset allowances.

That price has fallen because of sharp declines in the demand for electricity in New England and therefore the amount of power produced by power plants -- and thus, the amount of pollution they produce and the need for RGGI offsets -- as well as a switch from oil and coal to natural gas, which produces less carbon for each kilowatt of electricity generated.

As a result, the price for carbon offsets has fallen to $1.86 per ton, the minimum allowed under current RGGI rules and about one-third of the initial price. This has reduced the amount of money that participating states collect as well as the financial incentive for power plants to cut their CO2 emissions.

If the proposed reduction in the RGGI cap goes through, that price would probably rise again. This won't be welcomed by RGGI opponents, who describe the program as a hidden tax that raises electricity rates but accomplishes little.

A number of legislators, mostly Republican, tried to get New Hampshire to withdraw from RGGI last year, but the issue failed to pass the state Senate. PSNH has been a vocal opponent of RGGI, which it says contributes to an increase in its rates. Opposition to the program surfaced in other states, too. It was strongest in New Jersey, which has withdrawn from RGGI.

Supporters of RGGI tout the energy-saving benefits. A 2012 University of New Hampshire analysis claimed that the state's RGGI income has reduced annual energy use by 182,800 million BTUs, saving the state residents and businesses $5.3 million in annual energy costs.

Other changes to the RGGI rules include a containment reserve of allowances that creates a supply of allowances that are available for sale if CO2 allowance prices exceed certain price levels: $4 in 2014, $6 in 2015, $8 in 2016, and $10 in 2017, rising by 2.5 percent, to account for inflation, each year thereafter.

Other participating states are Connecticut, Delaware, Maine, Maryland, Massachusetts, New York, Rhode Island, and Vermont.

For more information, see www.rggi.org.