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N.J.'s departure from RGGI emissions pact has minimal impact

Business says program wasn't worth increased costs to electric bills

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It's been nearly two years since Gov. Chris Christie announced New Jersey would leave the Regional Greenhouse Gas Initiative, but in the months since the state's departure, some say the impact has been purely symbolic.

RGGI amounted to a pact between 10 (now nine) states to lower greenhouse gas emissions by capping the amount of allowable pollution and selling a limited number of pollution permits on an open market.

But in announcing New Jersey's pending departure, Christie said the market was failing to produce results. He said the permits were selling for such low prices that they wouldn't realistically deter pollution, and he said the state was already lowering carbon emissions without RGGI, thanks to the rise of renewable energy and the falling price of natural gas, which is cleaner than coal. Therefore, he said, it amounted to a tax on business and residential users "with no discernible or measurable impact upon our environment."

Since then, it seems little has changed, either from New Jersey's perspective, or from RGGI's.

Last week, Potomac Economics, which serves as the independent market monitor for RGGI, released its 2012 annual report, which found RGGI's market was functioning well, finding "no material concerns regarding the auction process." But it also showed the persistence of some of the same problems Christie cited. About 41 percent of permits offered in the auction were never sold, and the price of permits remained in the $2 range.

Frank Felder, director of the Center for Energy, Economic and Environmental Policy at Rutgers University, said such low prices won't have the desired effect of changing pollution habits.

"Energy and electricity typically is very pricing in-elastic," he said. "In other words, even large changes in prices have to occur over a sustained period of time before people meaningfully reduce demand."

In fact, Felder said, the only reason permit prices were even $2 is because the auction has a floor price.

In February, RGGI announced a plan to lower its carbon cap over the next several years, beginning in 2015.

But Dan DeRosa, a field organizer with Environment New Jersey, said there are other reasons it makes sense for New Jersey to be in RGGI. While the Garden State was part of the program, it reaped $113 million in auction proceeds, according to RGGI. That money was intended to fund clean energy programs. Environment New Jersey said the program also created some 1,800 jobs.

"What we projected was that if New Jersey had been continuing to be part of the program over the next six years, starting in 2012, we would have seen … more than $170 million for clean-energy projects in New Jersey," he said.

If you factor in the soon-to-be-implemented lower cap, DeRosa said his group calculates New Jersey could make between $340 million and $680 million for clean-energy programs.

But Sara Bluhm, vice president of energy and environmental affairs at the New Jersey Business and Industry Association, said New Jersey was decreasing its greenhouse gas emissions even without RGGI. She said the program isn't worth the increased costs it added to electric bills.

"Our biggest problem was that Pennsylvania was never part of the program," she said. "So New Jersey wasn't going to see the benefits, and we were taking steps on the industry side without the program. We didn't need another tax to achieve the results."

She said much of New Jersey's pollution comes from out of state, including Pennsylvania. Further, she said, New Jersey's competitiveness was hurt by its RGGI participation, as it increased the already-high electricity rates charged here.

Environment New Jersey argues RGGI ultimately lower rates by decreasing demand. DeRosa said Hurricane Sandy, along with Hurricane Irene and the October snowstorm in 2011, should make the case that climate change is a serious problem, and New Jersey needs to take every step it can to lower pollution.

"The first step is to rejoin RGGI and get New Jersey into moving as a leader again," he said.

Christie, however, shows no signs of reversing course.

Sen. Bob Smith (D-Piscataway), who chairs the Senate Environment and Energy Committee, said lawmakers never should have given the governor the power to exit the program. The Legislature was unable to block Christie's exit from the pact.

"It was passed under (Gov. Jon) Corzine with a Democratic Legislature, and there was probably too much kumbaya in the bill," he said. "It would have been better to have mandated it with less discretion."

Smith said there's a possibility the Legislature will pull together enough votes to force a re-entry and override a Christie veto, but that hasn't happened.

Meanwhile, Environment New Jersey and other groups are suing the state, alleging it was illegal to pull out of the pact.

"That, right now, is our best hope," DeRosa said.

But Felder said in some ways, RGGI is more about symbolism than results. Part of the motivation behind RGGI, he said, was to set up something of a pilot program that might someday be the model for a national cap-and-trade system. Any benefit or detriment New Jersey received by leaving the program is marginal.

"It's just really small potatoes," he said. "It's more the optics and building momentum."

E-mail to: jaredk@njbiz.com
On Twitter: @jaredkaltwasser

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