DEP, lawmakers weighing energy-cost impact of Greenhouse Gas Initiative

(May 4, 2007) The Department of Environmental Protection (DEP) and General Assembly are both struggling on how to implement the Regional Greenhouse Gas Initiative (RGGI) in Connecticut without triggering additional significant price increases in Connecticut's energy costs.

RGGI is an effort by Connecticut and eight other Northeast states to limit the carbon dioxide (CO2) emissions from power-generating units in the northeast. Generating facilities whose current emissions do not meet the cap requirements must either reduce their energy production or obtain “CO2 allowances” to make up the difference.

Businesses are concerned about how Connecticut will choose to make these allowances available to the power-generating facilities. One option, which has been used in similar programs elsewhere, is to simply give them to the energy generators that need them to comply with stricter emission limits.

Another option is to sell allowances only to energy generators at a price determined in accordance with principles stated in the RGGI agreement between the states. While this approach would increase energy prices, it would at least provide relatively stable prices that businesses could plan around.

Unfortunately, many global warming advocates want the state to take a much more aggressive and risky approach that would be predictable only in how it would ensure that RGGI's impact, at least in the short-term, would be to maximize energy cost increases.

Specifically, these advocates want 100% of the CO2 allowances distributed through an open auction where any entity, including Wall Street brokerage houses, could bid on them. These brokerage houses are already prepared with multi-million dollar funds to purchase the allowances and then sell them to energy generators at a premium.

The higher costs would then be passed on to Connecticut's energy business and residential consumers.

But RGGI requires only that 25% of the allowances be distributed in a manner that would provide a public benefit (i.e. conservation, energy efficiency or rebates to utility customers). The pact says nothing about using an auction for distributing those allowances.

This week, the DEP issued a "pre-proposal" for RGGI implementation to a RGGI stakeholder workgroup. Under this pre-proposal, the DEP would institute a 100% CO2 auction no later that 2015, but the proposal isn't clear what percentage would be used at the start of the process.

However, DEP Commissioner Gina McCarthy recently said in a radio interview that she does not believe the state will begin implementing RGGI with a 100% open auction but that the state has "every intention" that in time, all the allowances will be allocated through an auction process.

Meanwhile, lawmakers are currently considering a bill (Sect. 13 of SB-1374) that would authorize the DEP to allocate the CO2 allowances through an auction, and a new proposed amendment to that bill that would require the agency to auction 100% of the allowances.

The DEP is accepting comments on its RGGI pre-proposal through June 1. CBIA will be filing comments stating our concerns with the 100% open-auction approach. For more information, contact Eric Brown at 860-1926 or browne@cbia.com.

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