President Obama and other cap-and-trade advocates assured us they had “learned from Europe’s mistakes” and would auction all emission permits rather than hand them out at no charge to favored constituencies. Then the sausage factory known as Congress took over. The Waxman-Markey cap-and-trade bill proposes to dole out 85% of emission permits to preferred interest groups during the first several years of the program.
What explains this flip-flop? 100% auctioning turns a cap-and-trade program into an energy tax by another name. Actually, whether the permits are auctioned or not, cap-and-trade still raises consumer energy prices, but when permits are auctioned cap-and-trade is nakedly a revenue raiser for the bureaucratic sector. So Waxman-Markey drafters got cute and decided to phase in the auctions over time, on the theory, apparently, that we’re dumb as proverbial frogs in a pot of slowly boiling water and won’t notice being taxed by increments.
Another of the supposed “mistakes” Europe made in setting up its emissions trading system (ETS) was to “over-allocate” emission permits. This crashed the market for energy ration coupons, undercutting any incentive to reduce emissions or invest in lower-carbon energy technologies.
Well, ten Northeastern states, keen to demonstrate their climate leadership and solidarity with the Kyoto Protocol, got together and enacted the Regional Greenhouse Gas Initiative (RGGI), a multi-state cap-and-trade program in which almost all carbon permits are auctioned.
However, as Greenwire reports today (subscription required), “RGGI emission prices continue to slide in sixth auction”:
Prices slid again in the Regional Greenhouse Gas Initiative’s (RGGI) sixth auction for 2009 emissions allowances to $2.05 per short ton of carbon dioxide equivalent, the Northeast pact announced here today. The previous auction netted $2.19 per ton in September.
More importantly, “… 2012 allowances fell slightly in the Wednesday auction, to $1.86 per ton, from $1.87 in September.”
Why so? “There’s way too much supply, and there is no demand,” said Tim Cheung, an analyst with New Energy Finance. “You’re going to have these excess allowances that will continue to carry over to future years, which is why we think that prices will remain depressed going forward.”
RGGI avoided one of Europe’s “mistakes” only to repeat another. Among other things, the plunge in permit prices means RGGI is doing and will do squat to reduce emissions.
So even when politicians auction permits, rather than hand out them out as freebies, they can still run a system as ineffectual (in terms of its stated purposes) as Europe’s ETS.
Which raises an obvious question: Besides giving New England politicos a platform on which to preen and prate about their efforts to save the planet, what is RGGI good for?
Raising taxes, of course. Greenwire reports that:
About 31 million allowances were sold this week, mostly to energy producers facing RGGI compliance rules and secondary market traders. Participants bought 28.5 million 2009 allowances and just under 2.2 million 2012 allowance futures, with cash-strapped state governments garnering $61.6 million [emphasis added].
All told, RGGI has raised about $500 million for state governments in auction proceeds. But here’s where the story gets really interesting. “The 10 RGGI state governments are supposed to use auction proceeds to fund renewable energy or energy efficiency initiatives, but governments are using that cash to plug holes in their budgets.”
Greenwire mentions two examples:
Earlier this week, the research firm Point Carbon pointed to New York as the latest to cheat, with Albany passing a bill that will allow it to tap $90 million of RGGI auction proceeds to help fill its $5 billion budget shortfall. Today, New York’s Department of Environmental Conservation said the state drew $25.4 million in Wednesday’s auction.
Maryland became the first state to break ranks and use RGGI cash for a project not related to clean energy promotion. In April, Bloomberg reported that Maryland’s Legislature voted to use $70 million of its auction revenue for a rebate program designed to help low-income residents pay electricity bills.
It’s just like my colleague Myron Ebell likes to say. “There are three things you need to know about cap-and-trade: It’s a tax, it’s a tax, it’s a tax.”