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Nancy Anderson, Ph.D.Torchlight

"Que Sera" is Not the Answer

By: Nancy Anderson, Ph.D.

February 24, 2006

Another January has come and gone and with it the televised ritual of the President's State of the Union Message. Those of us who think that the time is now for action to address climate change and the nation's "addiction to oil" are faced with the familiar abdication of federal leadership and the attendant lack of concrete policy and resources. Until that changes, we must look closer to home to see what's new, who's making it happen and what progress is being made towards carbon neutrality and slowing climate change. In the US this means looking at regional, state, and local developments. For the northeast, the Regional Greenhouse Gas Initiative (RGGI) is a major policy event. For New York State, the Renewable Portfolio Standard (RPS) is a leader.[ i ] At the City level, examples of energy saving and clean power progress do exist, but they're disaggregated and their impact is hard to measure.

Let's begin with RGGI — pronounced "Reggie". What is it? Seven northeastern states, Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont, (with Pennsylvania and Maryland as observers and Massachusetts and Rhode Island as eleventh hour drop-outs) will establish an emissions cap and trade scheme for carbon dioxide and other greenhouse gases coming from power plants with a generating capacity of at least 25 MW of electricity. Although RGGI is less sweeping than the European carbon cap and trade scheme, which encompasses a much wider array of industrial emitters and was developed to meet Kyoto CO2 goals, the northeastern states have probably tailored their ambitions to their administrative abilities. [ii]

Here's how RGGI is designed to do meet its goals. Starting in 2009, carbon emissions from electric power plants will be stabilized through 2015 and then reduced by 10% by 2020. These benchmarks are not so different from the Kyoto target proposed for the U.S. economy of 7% by the end of 2012. RGGI will begin with a total "emissions budget" of 121.3 million short tons of CO2. This budget will be divided among the seven participating states, with New York at the high end with 64.3 million ton annual limit and Vermont at the low end with a 1.2 million ton limit. Under RGGI, emissions "allowances" are the measurement units for greenhouse gas emissions through trading and offsets. Each ton is equal to one "allowance". Early in 2006, state regulators and RGGI stakeholders will begin to design the program details that will make RGGI operational in 2009. During this period the institutional mechanism to carry out CO2 trading will have to be developed.

Allowances either can be initially distributed through auctions to raise revenue for RGGI states, or allocated without cost to electric power generators. The choice is up to participating states. It is clear that the architects of RGGI are very price-sensitive and states are likely to adopt what they believe to be the least-cost alternative. Some environmental stakeholders at the RGGI negotiating table argue that consumers would be best served if these initial allowances were auctioned, with the proceeds going to support both energy efficiency that will directly benefit consumers as well as strategies to reduce the long term cost of RGGI, including growth of alternative energy access and expansion of low-income energy assistance programs.[iii] Others hold the view that cost consciousness dictates a policy of free initial allocations to covered utilities to avoid additional charges to consumers.

Once the program is operational, which means that a trading market for allowances is up and running, if the cost of an emissions allowance rises above $7, an "offset trigger" allows the use of more offsets from outside the region, in order to keep a lid on prices. If the trigger price rises above $10, the offset area expands to all of North America. An important question for RGGI is what evidence exists to predict how often prices are likely to exceed $10? In London, the allowances market operates through an autonomous entity with current prices much higher than those projected for RGGI allowances. Such disparities are worrying and there are many opinions about why prices should be so different.

Exactly how participating states will carry out the challenge of RGGI and the complexity of coordinating their programs remains to be seen. In addition to the central cap and trade program, RGGI commits participating states to improving energy efficiency, reducing "highly polluting" energy generation, preventing the price of electricity from inhibiting economic growth and taking steps to encourage non-carbon based sources of electric power. Keep an eye on which state agencies are delegated program responsibilities and how they coordinate with the new "Regional Organization" and what funds are appropriated for implementation and oversight. Since RGGI lacks enforcement provisions, political leadership, institutional buy-in and public support are essential to success.

Turning to New York State, in September 2004, the Public Service Commission issued an order to create the Renewable Portfolio Standard. Governor Pataki first called for an RPS in 2003. By 2013, 25% of electricity retailed in New York State is to come from renewable sources and offsets. The Renewable Portfolio Standard both aims to reduce carbon emissions and, as a corollary, seeks to diversify New York's energy economy, insulate consumers against price shocks and stimulate new economic development associated with new power technologies and markets. New York is not alone in setting benchmarks for renewable energy; 21 other states around the US have already adopted RPS'.[iv]

As with RGGI, let's keep track of the resources and tools available for RPS development. For RPS, the New York State Energy Research Development Authority is the public agenacy responsbile for translating these ambitious aspirations into effective realities, although success will also be the result of private investors, as well as consumer and environmental advocates. For some, the direct cost of creating a robust RPS and the cost of electric power from renewable sources remain a concern, but the hope is that — with free renewable power sources — its operating costs will be competitive with carbon-based power. Although 19% of the State's electricity now comes from renewable sources (almost all hydro) the 6% increase to meet the 25% goal could be a real stretch. Wind power is the current favorite for the RPS, but skeptics point to its intermittent availability. Another program challenge will be whether communities will prove amenable to host wind farms and other RPS technologies. On a more optimistic note, a recent announcement from the global financial services giant Goldman Sachs spotlighting its plan to invest $1 billion in projects that develop alternative energy sources and its role as a wind energy developer and generator might be taken as indicators of maturing markets for renewable power, both in the US and abroad.

Turning to NYC, the first thing to say is that the City does not have an energy policy. Nevertheless, the Mayor's Energy Report of 2004 projected a rising electric power demand scenario, and called for the creation of 2,600 MW of new power while acknowledging that demand reduction and renewable energy must be part of any credible future. Passage of Local Law 86, the NYC Green Building Law, which places special emphasis on enhanced energy efficiency, could prove to be a big step in the right direction. With this new law on the books, the City has a mandate to make high perfomrance building the "new normal". Early in 2006, the City's Office of Environmental Coordination and the Design Trust for Public Space issued a Sustainable New York City report.[v] It highlights the salience of high performance buildings for meeting new energy and clean air goals and rightly pointed to the City's learning curve about high performance building that grew out of the work done by the Department of Design and Construction. These developments must be applauded, but the City can't stop there. Sustainable New York City, for example, has little to say about devising municipal policies that would directly impact sustainable energy.

City government itself is a major consumer of electric power and fuel — and escalating costs are borne by taxpayers — with no relief in sight. In fiscal year 2006, the City plans to spend more than $614 million on electricity, gas and steam. This is more than 18% higher than FY 2005's budget figure and does not include the cost of fuel oil. The City, in fact, has taken certain incremental actions that could play a role in lowering energy demand. It operates several programs in partnership with the New York Power Authority, the agency that sells the City most of its electricity, to reduce consumption and lower costs.

The Peak Load Management Program, which encourages on site power generation and the reduction of power demand, paid New York City $1.1 million in incentives for reducing its power demand during 2004's hottest summer days. The Energy Cost Reduction (ENCORE) program, which started in 1997, is a "major part of the City's efforts to control energy cots and improve air quality".[vi] ENCORE provides design and construction services, and, at the City's request, low cost financing for equipment and fuels that improve energy efficiency and decrease greenhouse gas emissions. The Department of Citywide Administrative Services, the City University, and the Health and Hospital Corporation all participate (but not the NYC Housing Authority). By the end of FY 2005, 226 ENCORE projects were completed at a cost of $183.9 million and with annual savings of $17.3 million.[vi]i Unfortunately, no figures on reductions in carbon emissions were provided. Nor were program goals established that could be used as a benchmark to measure achievements over time.

Is this enough? Hardly, but that's a topic for future columns. For now, where do we stand? Clearly, we need to mobilize widespread public demand and leadership for emerging climate change and energy policies to foster the markets and the mechanisms to innovate system-wide. We also need ways to capture what we learn from these innovations to lay the credible and compelling groundwork for expanding actions to cure our oil addition up to a federal and macro-economic scale. More immediately. for RGGI and RPS, extensive information gathering and reporting will be essential to the ability of program administrators, government budget makers, the media and the public to identify both successes and places for programmatic or technical corrections and improvements. Good public policy needs good evidence and requires diligent oversight. This can be well within our grasp.

The City is to be commended for communicating the follow-ups committed to in its 2004 Energy Policy report. Now it ought to centralize responsibility for developing and executing its sustainable energy initiatives and demand reduction efforts. As Sallan Torchlight "A Closer Look at" noted, the Administration should promptly update and release its Greenhouse Gas Inventory. The City Council can also take an active role in passing smart, targeted legislation to create an effective mix of mandates and incentives on the energy front. Even though much of the legal authority for New York's electric power system resides in Albany and the market is a major player in setting prices, building power plants and adopting or resisting new power sources and new technologies, there is a great opportunity for New York City to help shape its future. It is pointless to wait for Washington to lead the way.

PS — President Bush proposes to cut $10.8 million from EPA's clean air and global climate research 2007 budget while reviving his plan for oil drilling in the Arctic National Wildlife Refuge.

i In keeping with Sallan's mission to advance useful knowledge, see "New York Tackles Climate Change" and
ii For regularly updated information on RGGI see
iii See Environment Northeast, NRDC, and Pace University Law School Energy Project, "Regional Greenhouse Gas Initiative, Consumer Allowance Allocation", n.d.
iv For an excellent summary of New York's RPS see Eleanor Stein, "The New York Renewable Portfolio Standard: Case Study in Process and Substance", Environmental Law in New York, Volume 16, No. 3, March 2005
v Sustainable New York City January 2006
vii Ibid.

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