www.baltimoresun.com/features/green/blog/bal-bmg-regional-climate-compact-at-a-crossroads-20121211,0,3699292.story

baltimoresun.com

Regional climate compact at a crossroads

Maryland, other states aim to keep reducing power plant carbon emissions without boosting power prices

Tim Wheeler

9:05 PM EST, December 11, 2012

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A pioneering regional compact to fight climate change stands at a crossroads, as officials from Maryland and eight other Northeast states meet Tuesday in New York to weigh new limits on their power plants' carbon dioxide emissions.

With emissions significantly reduced since the Regional Greenhouse Gas Initiative began in 2008 - though mainly from other factors - the states are weighing how much lower to try to push carbon-dioxide releases through the end of the decade without risking stifling their economic recovery.

"We're here to set a reasonable cap,'' said Robert M. Summers, Maryland's environment secretary, on the eve of the gathering. He said he hoped the group would settle on an emissions ceiling that would lead to further reductions without what he called a "major price impact" on electricity rates in the region.

A spokesman for the nation's first market-based climate regulatory program said no decision was expected from Tuesday's meeting, though Summers said he hoped the group could get close to an agreement that could be finalized in coming weeks. After the meeting, Summers reported that a draft proposal would be prepared and released by the end of January.

Any new limit settled upon is intended to go into effect at the beginning of 2014, to give states time to adjust their regulations.

Environmental groups are urging the states to set a cap that would push emissions down more, arguing that the results to date show that reductions can be achieved without triggering  significant increases in electricity rates that might hurt the economy.

Emissions are on track to fall as much as 45 percent below the cap set by the group for this year, even as electricity prices have declined 10 percent overall since the initiative began, according to a report issued Monday by Environment Northeast (ENE), a Maine-based environmental group.

A variety of factors caused the declines, the group's report says: power plants switching to cleaner-burning natural gas from more polluting coal and oil, increases in renewable energy and improved energy efficiency. The nation's economic woes also played a role in reducing emissions, according to the report, but not a major one.  And in fact, analyses have indicated that the regulatory program has been a net benefit for the economy, because of revenues generated by the auctions of carbon-dioxide emission allowances.

The cap-and-trade program -- under which power plants are required to buy allowances at auction to offset their carbon dioxide emissions -- has been touted as a national model for reducing the energy sector's contribution to climate change. Though Congress failed to pass climate legislation a few years ago, observers say it's still possible the Environmental Protection Agency could move to regulate carbon dioxide emissions from existing power plants.  California recently launched its own similar regulatory scheme.

"In a way, what RGGI states decide will have national and even broader impact," said Peter Shattuck, ENE's director of market initiatives.

But Shattuck said he's concerned that representatives of Connecticut, Delaware, Maryland, Massachusetts, Maine, New Hampshire, New York, Rhode Island and Vermont may fail to reduce or even hold the line on emissions unless they set tight new limits.  Three of four cap propsals analyzed so far would actually allow emissions to increase, he said, while only one would likely lead to a small reduction through 2020.

The emissions cap originally set by the initiative was so loose that it has allowed power plants to buy allowances relatively cheaply and "bank" them for future needs, Shattuck explained. So unless the new cap is set at or below the current level of overall emissions of about 91 million tons this year, then energy companies may be able to use those reserved allowances to actually increase emissions in future years.

Maryland's Summers said states' representatives are aware of those issues and weighing options for dealing with them.  He said that with emissions now well below the cap, carbon-dioxide allowances are selling for minimal prices and not all the allowances are even being put up for auction.  But state representatives are wary, Summers added, of doing anything that would push energy prices dramatically higher and affect economic activity.

"We want a meaningful cap,'' he said, noting that Maryland lawmakers, at the behest of his boss,  Gov. Martin O'Malley, have committed the state to reduce its greenhouse gas emissions 25 percent by the end of the decade. The regional program to regulate power plants is expected to play a major role in the state meeting its emission goals, since whatever cap is set is supposed to decline by 10 percent by 2020.

The auctions of carbon dioxide allowances have raised $1 billion for all the states through June of this year, and those funds have been largely plowed into improving energy efficiency or developing renewable energy.  Maryland has raked in more than $219 million, though in this state much of the revenue until lately has been diverted to reducing consumers' power bills - a variation that some had criticized as counterproductive to promoting energy conservation.