Ric Werme's RGGI Watch -Repealing the Regional Greenhouse Gas Initiative
Financial notes about withdrawing from RGGI.

Introduction

This web page contains matter that I submitted to the New Hampshire House's Finance Committee to address any concerns they might have about the economic impact of withdrawing from the ten state Regional Greenhouse Gas Initiative.

There are two key concerns raised by opponents of HB 519-FN. The first is that we won't receive RGGI proceeds but will still have to pay for CO₂ allowances used by power producers in neighboring states that are still in RGGI. The second is the concern that saving the small cost of the RGGI allowances pales in comparison to the good works that are done by RGGI grants.

When the vote came up, the democrats on the committee had left for another committment, so only the republicans voted, and all voted in favor.

The real goal

Several opponents to HB 519, including Governor Lynch, note that because NH imports electricity from the other RGGI states, we will still be paying for allowances but not be getting the benefits from them.

True enough, but this misses two things. First, withdrawing from RGGI is not the ultimate goal. We want to dismantle RGGI to end the allowances and auctions. While New Hampshire's energy production and consumption is too small to disrupt RGGI, the House's veto-proof approval of the repeal was loud and strong in New Jersey. Their legislature introduced bills in each branch last September, and our actions have gotten New Jersey's attention and will encourage them to press forward.

If New Jersey withdraws from RGGI, that will have a big impact. New York is also talking about leaving RGGI, and I'm sure that talk has become more earnest. I don't know what other states are doing yet, but I created a new web page to track that activity, see http://wermenh.com/rggiwatch/index.html .

The cost is only $0.065 cents per month (or $0.36 or $0.83)

And that pales in comparison to the money that comes back to the state. What a bargain - we spend a little money, and get a lot back. Except, I was under the impression that money paid into RGGI comes back to the state, minus the cost of running RGGI Inc. and the auction. So things should be a wash unless power producers are stockpiling CO₂ allowances while they're inexpensive. The math comparing costs and grants doesn't seem to work. First, let's look at snippets from a few newspaper articles.

Last December, an article in The Union Leader said:

An average residential customer of Public Service of New Hampshire pays about 6.5 cents a month for those allowances - or $5 million in total in 2010, according to a utility spokesman.

Jack Ruderman, who heads the sustainable energy division at the New Hampshire Public Utilities Commission, said New Hampshire's proceeds from the sale of carbon allowances have totaled about $28 million since December 2008.

The Union Leader mentions the 6.5 cents again in House votes for NH to exit cap-and-trade program. Note the disingenuous use of reporting the cost for one year, but reporting the return for the entire 2.5 year RGGI life. http://www.rggi.org/docs/NH_Proceeds_by_Auction.pdf has auction data for New Hampshire. The proceeds for 2010 (auctions 7-10) are just over $10 million. The proceeds for Auction 10 were just $1.67 million and if that is maintained for 2011, NH will see only $6.7 million in 2011. My guess is that power producers have stocked up on enough allowances at the $1.86 floor price and may need to buy very few allowances this year, and maybe next. Do not expect a windfall this year!

At the Feb 10 state house hearing, NH Public Radio reported:

Public Service of New Hampshire has estimated that to be about 36-cents a month for the average household.
6.5 cents, 36 cents, I assume there's no auditor's report to go with the claims. Which is it, why are there two figures, and how were they derived? I don't know yet, but there's a simplistic way to derive an interesting value.

Take the costs to ratepayers for RGGI allowances. A quote above was for about $5 million in 2010.

The 2000 US Census counted 474,606 households in NH, let's call it 0.5 million now. That's $10 per household per year, or $0.83 per month. I believe the difference is due to estimates in increased efficiency, either by the power producers or improvements funded by RGGI dollars. However, assigning all these improvements to RGGI is both quite a reach and won't track future allowance pricing.

The winning auction bids for the last few auctions have been at the $1.86 per ton auction floor. This is not what people anticipated for the typical allowance by now. The intention was that allowances become more scarce and that demand would grow over time. My $0.83 per month estimate could easily become 5X greater in the foreseeable future.

This is a good time to leave RGGI

Let's assume New Hampshire pulls out of RGGI now and is burdened with a year or two of RGGI payments that don't come back to us. This is the ideal time to withdraw from RGGI - the current CO₂ allowance price is as low as it can be. This will give other states a chance to catch up to New Hampshire's lead but will cost New Hampshire less than it will at any time in the future. If my suspicion that producers may already have enough credits for 2011 holds, the cost to New Hampshire may be lower than anyone expects.

Future analysis

While writing this, I think I found the report Governor Lynch referred to at Economic Impact in New Hampshire of the Regional Greenhouse Gas Initiative (RGGI): An Independent Assessment (Update Feb 2011) Memo. This deserves more study as it provides hints as to how some figures, primarily for 2009, have been derived. The assessment only considered staying in RGGI vs. withdrawing from RGGI. Unfortunately it didn't consider the effect of shutting down RGGI.

One of the authors is both a PhD candidate at UNH and is also involved with Cameron Wake's Carbon Solutions New England, an organization devoted solely to reducing CO₂ emissions in New Hampshire. It may be independent, but by no means is it neutral!

Contact Ric Werme or return to his home page.

Written 2011 March 6, last edited 2011 March 9.