HARTFORD, Conn. – Less carbon dioxide is polluting the air in the Northeast, prompting state environmental officials to cut allowances for emissions in one of only two cap-and-trade programs in the United States.
Officials in all six New England states and Delaware, Maryland and New York are putting in place new rules, adjusting the limit on emissions for 2014 to 91 million tons of carbon dioxide from 165 million tons. In addition, the Regional Greenhouse Gas Initiative program calls for a 2.5 percent cut in emissions each year from 2015 to 2020.
An auction is scheduled for September for power plants to buy the reduced number of allowances to emit carbon dioxide.
Backers say the cap-and-trade system, which has been in place for four years, can serve as a model for a national pollution credit marketplace. Disagreements between Democrats and Republicans in Washington have stalled action.
“It’s proven that cap-and-trade can work,” said Peter Shattuck, director of market initiatives for Environment Northeast, an environmental research and advocacy group. “The sky has not fallen in the Northeast despite some doomsday scenarios.”
Emissions have come down far more quickly than anticipated, partly because the recession and weak recovery cut economic activity. In addition, natural gas, which is relatively cheaper, is cleaner than coal-fired plants and oil heat.
David P. Littell, a member of the Maine Public Utilities Commission and an organizer of the Northeast greenhouse group, said other factors also have helped cut emissions: energy efficiency, development of renewable energy such as wind and hydro power, and warm winters and cool summers that have reduced the need for high levels of heating and cooling.
“Even beside the cap, how we are dedicating allowances is having a substantial impact on reducing emissions,” Littell said.
At the most recent auction in June, allowances sold at $3.21 each and raised $124 million. The money was used to promote renewable energy, rate relief for low-income customers, energy efficiency and other programs.
New England’s electric generating companies are split on the greenhouse gas initiative, said Dan Dolan, president of the New England Power Generators Association. Operators of some power companies believe cap-and-trade is a step in the right direction, but want a “few tweaks” in how the policy is pursued. Other operators believe it has a negative impact on energy pricing.
Marc Brown, executive director of the New England Ratepayers Association, said the cap-and-trade program is superfluous because shifts to natural gas are doing more to cut emissions. Also, he said, revenue from the sale of permits used to reinvest in clean energy programs is an inefficient subsidy. A better way would be to provide a tax credit to individuals, Brown said.
“That way you’re not having bureaucrats picking winners and losers for efficiency programs,” he said.
The price of an allowance to emit one short ton of carbon dioxide is sensitive to actions by regulators. Senior analyst Olga Chistyakova of Point Carbon, an emissions market analysis firm, said prices were as low as about $1.90 until the nine-state region decided in February to reduce the limit on emissions. That sent the price to $3 per short ton, she said.
Public policy professor William M. Shobe of the University of Virginia said the true cost of carbon dioxide emissions — accounting for damage to the environment — is more than $10 per ton. The lower price at which allowances are traded reflects an early belief by policymakers that the federal government would establish a national cap-and-trade program, he said. The Regional Greenhouse Gas Initiative program calls for a 2.5 percent cut in emissions each year from 2015 to 2020.