How Can Critics of Carbon Dioxide Cap and Trade Explain This?

June 11, 2014
Carbon dioxide emissions dropped – as did energy costs – in U.S. states served by the Regional Greenhouse Gas Initiative. Meanwhile, energy prices rose elsewhere in the country. How will critics of cap and trade explain away this?

You can’t miss the swords drawn to slash the Obama administration’s new plan on carbon dioxide emissions. There are big dollar signs written on their hilts.

Republican opponents, the Heartland Institute and others are brandishing warnings about hikes in electricity prices they say will come as coal-fired plants tumble under the restrictions. The Heartland Institute predicts a cost of $50 billion per year to the U.S. economy.

Right or wrong, such arguments are likely to look medieval compared to the other side’s arsenal: Not predictions, but data from a real-life carbon cap and trade program with a five-year track record.

Called the Regional Greenhouse Gas Initiative, or RGGI, the nine-state program could serve as a model, analysts say, as states figure out how to meet the Environmental Protection Agency’s new proposal to cut carbon 30 percent by 2030.

“RGGI has demonstrated that emissions can come down rapidly and affordably in the electric sector,” said Peter Shattuck, director of market initiatives at Environment Northeast, a group that has been tracking RGGI for several years. “The ongoing progress of the program shows that this is an effective mechanism for cutting pollution from major sources.”

The common assumption is that reducing carbon dioxide emissions equates to increasing electricity costs. But since RGGI started, electricity prices declined eight percent in the nine states, while in non-RGGI states they rose an average six percent, according to recent ENE report. Meanwhile, emissions in RGGI states dropped 29 percent.

How did this happen?

RGGI is a complex program with a simple logic behind it. Create a cap on the amount of carbon dioxide that power plants are allowed to emit. Let the power plants meet the cap by purchasing allowances sold at auction. Channel auction proceeds back to the states who then use a big chunk of the money for energy efficiency.  As a result, consumers use less energy, emissions fall and utility bills go down.

The RGGI states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont) increased energy efficiency investment from $680 million in 2008 to $1.94 billion in 2012, a 186 percent increase.  (See related story”What’s Ahead for New England Energy Efficiency Markets?“)

Of course, RGGI advocates can’t give the program all of the credit for the drop in electricity rates – and they don’t try. Various factors play into this achievement – low natural gas prices, in particular. But the RGGI data at the very least gives pause to the idea that carbon restrictions kill an economy.

“RGGI state economies have outpaced the rest of country, showing that the link between economic growth and emissions has broken in the region and demonstrating that we can address the threat of climate change while promoting continuing prosperity,” said the ENE report.

Economic downturns, of course, decrease power plant emissions as well. When we do less business we use less energy.  But now, as the economy is recovering, RGGI states are still seeing emissions decline, ENE said.

”Furthermore, within the RGGI region, emissions dropped 2.7 times faster than the rest of the country since RGGI was established, even as RGGI’s states’ economies have grown 2.5 times faster than other states,” the report said.

There is a long way to go before the EPA’s carbon dioxide reduction plan goes into effect – at least a year before it moves from draft to final rule, and then at least another year before the states file plans to show how they’ll reduce carbon emissions from existing power plants. Law suits are inevitable, too, and that could cause further delay.

So there will be plenty of time for debate over the economics of carbon dioxide cap and trade. Expect to hear more about RGGI (pronounced Reggie) in the coming months – if you can over the clanging of swords.

The full ENE RGGI report is here.

What’s your take on the economics of carbon cap and trade? Join the discussion on Energy Efficiency Markets LinkedIn Group.

About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is the editor and founder of She is co-founder and former editor of Microgrid Knowledge.