Corrected at 11:32 a.m. on March 2.
Just over a year since its inception, the nation's first mandatory cap on greenhouse gas emissions seems to have defied the conventional wisdom -- at least in some quarters -- that cap-and-trade legislation is bad for the economy.
Last month, Maine Gov. John Baldacci (D) attributed the creation of 1,000 jobs to the Regional Greenhouse Gas Initiative (RGGI), a coalition of 10 Northeastern and Mid-Atlantic states dedicated to a modest reduction in the amount of carbon dioxide emitted by power plants.
RGGI proceeds, combined with other funding sources, are "having a significant economic impact in Maine," said David Littell, commissioner of the Maine Department of Environmental Protection and chair of RGGI's board of directors. "The investments we are seeing in renewable energy, in energy infrastructure, appear to be the largest wave of capital investment in the state's history."
Apart from the projects already under way in Maine, RGGI seems poised to buoy local economies across the Northeast in the coming year. Last August, New Hampshire Gov. John Lynch (D) approved $9 million in grants to reinvigorate the state's green economy. And on Jan. 29, Massachusetts Gov. Deval Patrick (D) committed investor-owned electric and natural gas utilities to new efficiency standards, a measure that Phil Giudice, an official in the state's Office of Energy and Environmental Affairs, predicts will create or maintain 4,000 jobs. Both initiatives were partially underwritten by RGGI's sale of carbon allowances to power plants.
Though far more limited in scope than the climate change legislation sponsored by Reps. Henry Waxman, D-Calif., and Edward Markey, D-Mass., last year, RGGI has already generated half a billion dollars. Under its framework, participating states sell carbon allowances during quarterly auctions and invest the proceeds in renewable energy, energy efficiency and energy subsidies for the poor. Under the aegis of RGGI, allowances have joined the ranks of crude oil, soybeans and other fungible commodities bought and sold by investors.
In spite of its early success, RGGI's leaders have not aggressively courted the major news media, in part because participating states favor a "businesslike approach," said Jonathan Schrag, executive director of RGGI, Inc., a nonprofit in New York City that coordinates the program.
"We are deploying the first carbon market in the United States that's mandatory," Schrag said. "We think that's really important, and we think that we ought to focus on nailing the implementation before we start to crow about it."
And RGGI is certainly a work in progress. All 10 of its members are signatories to a "memorandum of understanding," which details RGGI's commitment to combating the threat of climate change. Each state has devised an institutional structure in consultation with local stakeholders, and each must reckon with a unique political landscape.
But the very balance between state and centralized authority that makes RGGI such an intriguing model can also be a liability. Last October, New York Gov. David Paterson (D) proposed siphoning $90 million from RGGI's coffers to help close his state's $50 billion deficit. And even though Baldacci and other governors have pledged not to raid RGGI's assets to balance their budgets, RGGI's scale may undermine the confidence of potential investors in its wares.
In order to boost the value of a short ton of carbon from its current price of around $2, RGGI would have to tighten its cap, said Christine Cordner, senior editor at Platts Emissions Daily. But, Cordner said, "Getting agreement among all 10 states during an economic downturn with budget crises like New York would be virtually impossible, and market folks aren't banking on that."
And because a short ton has never reached the $5-$10 price range that many predicted at the program's outset, the expense of carbon allowances "barely merits a note" for the targeted plants, Cordner said, noting that multibillion-dollar energy companies "don't even have RGGI in their accounting book."
Nonetheless, RGGI's purpose was never to penalize the electric utility sector, and Schrag does not seem to mind if trading carbon is less lucrative than trading pork bellies, so long as the market operates as it should.
"What we focus on is making sure that the market mechanism works," he said. "And what you see is that prices are reflecting fundamentals. The regulatory system, the auction platform, the auction design, the administration of the auction -- all the procedures are working efficiently."
And the realization of a working cap-and-trade system, coupled with the economic benefits that have redounded to its participants, may have implications for the ongoing discussion of a nationwide emissions regime in Washington. RGGI is a laboratory where "journalists, regulators, market analysts, and market participants can all learn to play," Schrag said.
"When the time is ready to extend that to the nation, certainly the people here will extend that to whoever wants to know."
CORRECTION: The original version of this report misstated how RGGI funds were used in New Hampshire. Additional assistance for low-income energy consumers comes from a statewide surcharge on electric bills, not RGGI proceeds.
CLARIFICATION: Energy efficiency investments in Maine include RGGI funding as well as other sources.