Why States Are Struggling With Cap-and-Trade Programs

New Jersey has built a reputation for being clean-power friendly. Thanks to state incentives, it was the second largest market for solar panel installations in 2010. Yet New Jersey recently withdrew from the only green house gas emissions cap-and-trade program, undercutting nationwide efforts to promote renewable energy, and highlighting the difficulties states are facing when it comes to mandating carbon emissions reductions.

New Jersey republican Governor Chris Christie announced last week that the state will withdrawal from the Regional Greenhouse Gas Initiative (RGGI), which began in 2008 and was an initiative by 10 northeastern states to require power plant operators to gradually cut carbon dioxide emissions. The states sell emission permits through auctions and are supposed to use the revenues to fund clean power programs in order to further cut emissions.

Christie, who promised to become the state’s “No. 1 clean energy advocate” during his gubernatorial campaign in 2009, contended last week that the RGGI was ineffective in cutting emissions. In his statement to pull New Jersey out of the RGGI by the end of the year, Christie said the pricing for carbon allowances has been too low to create an economic incentive for power companies to curb emission. In fact, he said the use of natural gas instead of coal has made the most impact on reducing the state’s emissions because natural gas has become cheaper, and it emits fewer emissions than coal.

The timing of New Jersey’s move illustrates just how tough it is to use federal and state regulatory power to cut greenhouse gas emissions. Owners of power plants, oil refiners and other industrial operations often don’t want cap-and-trade programs largely because of the extra costs involved to implement programs, and have fought efforts to create a national program in recent years. Republicans also have derided cap-and-trade as a tax in disguise. Christie, too, called it a tax that will keep businesses away from New Jersey.

On the other hand, cleantech companies, which are building technologies to reduce carbon emissions, often favor cap-and-trade programs because they provide clarity — and extra revenues — for the markets they are trying to sell into. The heavy polluters buy the cleantech firms’ technologies to meet emission caps. Putting a price on carbon can make clean power and energy efficiency technologies, which are not yet at a large enough scale to benefit from the economies of scale, more economically viable. Christie says he still remains committed to boosting renewable energy installations in the state and cited the more than a dozen laws that promote clean energy generation.

But Christie’s decision sends a bad message. If more states follow New Jersey’s lead and withdraw from the cap-and-trade program, it will add more uncertainty to the cleantech market. There is no federal cap-and-trade program in the U.S., which is why states have taken up the charge. An energy bill with a cap-and-trade component passed the House in 2009 but never gained support in the Senate. But with some states participating in these programs, and some states opting not to participate, the state cap-and-trade programs aren’t as powerful or comprehensive as federal mandates would be.

Other states beyond New Jersey have had trouble, too. California had hoped to become the first state to implement a more comprehensive cap-and-trade program in 2012, but has had tough times implementing it. The problem came out of a lawsuit from environmental groups that believe the legislation will lead to more pollution in poorer neighborhoods, where heavy industries are more readily found, because polluters can buy credits to offset their emissions. The cap-and-trade program is itself part of a climate change law that was signed into law in 2006 but faced challenges at the polls last year.

With the current political climate – Republicans took control of the House this year and a presidential election will take place in 2012 – passing a national cap-and-trade program is now a fantasy. States have so far led the way, but with New Jersey’s move and problems in California, state cap-and-trade initiatives seem vulnerable as well.

Photo courtesy of Libelul via Flickr