Global Warming Showdown in Trenton?

Two controversial bills were introduced in Trenton last week into the lame-duck session. The bills purportedly would implement aspects of the Global Warming Response Act (GWRA) signed by Governor Corzine last July.

The GWRA sets a 20% green house gas emission reduction goal by 2020, and an 80% reduction by the year 2050. That law has been praised as well intentioned but criticized as toothless (see Star Ledger Op-Ed: “No teeth in “tough” pollution law“

Given potentially significant economic, energy, and global warming policy issues at stake, these pollution “cap and trade” bills could prompt a debate between energy industry lobbyists and environmentalists, and test the Corzine administration’s commitments to the global warming issue.

Last month, in the wake of Governor Corzine’s high profile trip to Portugal to sign an international global warming aggreement, Corzine said that he expects his cap-and-trade legislation to come out of the lame-duck session (See: Corzine signs climate change pact).

The supreme irony of a former Wall Street CEO trotting onto a world stage in Portugal to sign a symbolic declaration to promote market based solutions and then pledging to ram implementing legislation through a lame-duck session was lost on the media.

Praiseworthy media accounts failed to note that the Portugal Agreement lacks any legally binding substantive terms and conditions, and thus fails basic corporate and market tests.

Obviously, ramming legislation designed to impact the future of the planet through a lame duck legislative session raises troubling issues of democratic governance. And as a matter of pure politics, the Corzine Portugal spectacle takes a page out of Christie

Whitman’s playbook. The event recalls Whitman’s 1994 junket to the Netherlands to tout “Sustainable Development” – with environmental sycophants and media stenographers in tow (see: “Green agenda a hit for Corzine, but critics see red”

Assembly bill No. 4556, sponsored by Environmental Committee Chairman McKeon, would authorize thee Department of Environmental Protection (DEP) to create an emissions trading program. The DEP would auction green house gas emission “allowances”.

Under RGGI, NJ is allocated about 22.9 million tons of emissions. Each “allowance” would authorize emission of one ton. Auction prices for allowance discussed in RGGI negotiations are in the ballpark of $3 per ton. So the bill could generate approxiamtely $65 million that would be used to invest in energy efficiency and renewables and protect consumers.

Assembly bill No. 4559, sponsored by Telecommunications and Utilities Committee Chairman Chivukula, is a broader bill that would authorize DEP to establish a cap and trade program and leave the details of the program to DEP rules.

Here are the benchmarks and criteria I will apply in evaluating any “cap and trade” legislation:

1. No Legislative Rubber Stamp of the outcome of RGGI negotiations

There is spirited debate among scholars of American government regarding the respective roles and powers of the Legislative and Executive branches. In theory, the civics textbooks say that the democratically elected Legislative branch makes policy choices and enacts law, while the executive branch implements the law.

In practice, this is far from case. As issues have become more complex, laws typically delegate broad discretion to executive branch bureaucracies to “fill in the details”. Of course, the devil is often in the details, so this approach puts unaccountable bureaucracies in the drivers seat.

At one end of the spectrum of this debate, Cornell government professor Ted Lowi believes delegation has gone too far. Lowi’s classic book “The End of Liberalism” criticized broad delegations to unaccountable bureaucracies as an abdication of Legislative responsibility to make policy choices and an erosion of democracy. Others, such as legal scholar KC Davis in his classic “Discretionary Justice”, believe that in an increasingly technologically complex world, legislatures must provide flexibility to expert agencies to fill in the details of broad legislation.

While I studied under Lowi, I practiced as a DEP bureaucrat under Davis’ model.
RGGI negotations are highly complex and have been ongoing for many months.

The Legislature must not rubber stamp the “model rule” outcome of these negotiations. To do so would amount to an abdication of responsibility and governance by technocrats.

At a minimum, those that designed and negotiated the RGGI program should be required to testify publicly to explain the RGGI policies. Based on open deliberations and public input, the NJ Legislature then must make the policy choices.

The bottom line is that the legislature needs to step up to the plate and take responsibility for making policy. This is particularly important given some of the controversial policy issues buried in the RGGI process in the economic models and fine print of the “model rule”.

2. Credible caps on emissions

The NJ RGGI cap is 9 percent HIGHER than current emissions. This places the 10% emission reduction goal in context. The credibility of the cap is a critical issue. If a real cap is not established that would make meaningful progress towards the GWRA aggressive goals, then a huge reform opportunity will have been squandered.

3. Imports of more dirty coal must be restricted

According to recent news reports,

“A major move to boost grid capacity is under way to bring more cheap coal-fired electricity to the high-cost Northeast.

At least eight lines, stretching some 2,000 miles through six states at an estimated cost of more than $9 billion, are under active consideration or have been formally proposed.”
See: Cheap power to Northeast US: a mixed blessing

At least eight transmission lines are planned to connect the region with Midwestern coal plants.

Worse, the US Department of Energy just designated NJ as a National Priority Corridor. This designation would facilitate import of all this planned expansion of dirty coal power into new Jersey.

There is a real possibility that RGGI might provide incentives for importation of more dirty coal power from the west. This is known as “leakage”. The leakage issue must be solved BEFORE the RGGI program is implemented and must be included in any “cap and trade” bill.

Leakage would make things far worse and result in a triple whammy of higher energy costs for NJ consumers; increased global warming carbon emissions; and price disincentives to renewable wind and solar power.

The Union of Concerned Scientists has warned about a poorly designed RGGI program:

“ineffective RGGI could hurt chances for a truly effective national regime, because it could play into arguments that real solutions are “too expensive.”
“failure to solve leakage would have serious economic costs to the region, as well as political costs that would:

• undermine political support for the program;
• confound our ability to solve it later, and;
• hinder the desired expansion of the RGGI region.”

http://www.rggi.org/docs/ucs.pdf

The Legislature must heed the warnings of UCS scientists.

4. Technical Standards and oversight of “offset” projects

The RGGI agreement would allow all sorts of potential loopholes to the caps for “carbon offset” projects and price triggers. Any bill must include standards and government oversight to prevent abuse of these options that could undermine the cap and needed emissions reductions.

5. Price of allowances

The price of each pollution allowance will be set by auction. It is not clear whether there will be a minimum price. RGGI documents I’ve reviewed suggest $3 per ton for the price of an allowance. In contrast, academic studies have shown that far higher prices, in the $40 – $55 per ton range, are necessary to have a real impact on the economic decisions regarding alternatives to continued reliance on dirty coal power plants. For example, a Carnegie Mellon Electricity Industry Center Working Paper titled: “Should a coal-fired power plant be replaced or retrofitted?” found:

“In a cap-and-trade system, a power plant operator can choose to operate while paying for the necessary emissions allowances, retrofit emissions controls to the plant, or replace the unit with a new plant.Allowance prices are uncertain, as are the timing and stringency of requirements for control of mercury and carbon emissions…..An expectation that the CO2 price will reach $50/tonne in 2020 makes IGCC with carbon capture and sequestration attractive today even for planning horizons as short as 20 years. A carbon price below $40/tonne is unlikely to produce investments in carbon capture for electric power.”

The legislation should set a minimum price of an allowance and base that price on the ability to influence critical economic decisions of the utiliites with respect to coal power.

6. Monitoring, Verification and enforcement

NJ has had a bad experience with market based pollution trading schemes. Whitman’s “Open Market Emissions Trading” (OMET) program was touted as a national model. It was poorly designed and a failure that was withdrawn (see:

NEW JERSEY REJECTS EPA PLAN FOR TRADING POLLUTION CREDITS — Rebuked EPA Weighs Enforcement Against Companies Using Credits

Washington, DC – Calling air pollution credit trading a “failure,” New Jersey Department of Environmental Protection Commissioner Bradley Campbell has informed the U.S. Environmental Protection Agency (EPA) that the state will “terminate” the program, according to a letter released yesterday by Public Employees for Environmental Responsibility (PEER).This move by New Jersey is the latest blow to the Bush Administration’s campaign to implement market-based pollution controls.

Let’s hope NJ has learned a lesson from OMET and improved the design of RGGI.

The burden is on RGGI proponents to make this public demonstration.

7. Public involvement, transparency, accountability

There is overwhelming public support and a willingess to pay higher electricity prices for real solutions to the global warming crisis. Any legislation must tap into the sentiment and allow citizens as well as energy consumers an opportunity to participate in the program.

Ramming a bill through the lame duck legislation would start the program on the wrong foot.