Millions of RGGI "Cap and Trade" Auction Proceeds Unspent Due to Legal Challenge

In a prior PULP Network blog post, we discussed the pending legal challenge to the Regional Greenhouse Gas Initiative (RGGI) program now being implemented by New York and nine other states in an effort to reduce CO2 emissions from power plants, in advance of any national program.

New York is the only state where a Governor, through executive action and action through a agency and a state authority (DEC and NYSERDA), attempted to implement RGGI without specific enabling legislation. As a result, NYSERDA is receiving substantial auction revenue from the sale of allowances and allocation of the revenue -- $128 million to date -- is underway without any specific enabling legislation or budget appropriation.

As with any "cap and trade" program to reduce C02 emissions, the RGGI program is raising electric rates for all electricity sold at spot market rates in New York, even that which is produced with wind, water, or nuclear rather than by burning fossil fuels like natural gas or oil. See

• "Cap and Trade" Market System for CO2 Reduction Likely to Raise New York Electricity Prices, and
  
• CO2 Cap and Trade Programs Inflate Electric Rates in Restructured States.

Also, all sellers offering to enter into long term bilateral contracts are likely to consider what they could receive in the spot markets, even if they are non fossil producers whose own costs do not rise. Litigation was commenced by a power producer with a long term contract who could not raise its prices to the buyer due to the added cost of allowances it is now required to buy under the DEC RGGI regulations.

The Petition and Complaint in the court proceeding contends, inter alia, that the Governor, DEC, NYSERDA and the PSC acted beyond the authority delegated to them by the Legislature, and that RGGI is an interstate compact not approved by Congress.

As a result of the court case and uncertainty over legal authority to operate the program, the $128 million received to date in new revenue from the auctions of CO2 allowances is not being spent by NYSERDA. See Brian Nearing, Energy Efficiency Pool Hits $128m - Lawsuit from Corinth Operator Bars State from Spending Funds, Albany Times Union, June 20, 2009.

PULP recommends -- without success to date -- that a significant portion of revenue from the sale of RGGI allowances be specifically allocated to provide energy efficiency measures to help low-income customers reduce their rising energy bills.

Low-income households typically live in older, less efficient housing with older heating systems, controls, appliances, and energy consuming fixtures. Due to their lack of income and savings, there is a chronic market failure because they cannot afford the initial cost of investments in energy efficiency measures that will reduce usage and bills over time. Thus, providing assistance to low-income households may have significant payoffs in terms of reduced energy usage and improved living standards with less distortion of markets in which affluent customers can make cost effective energy efficiency investments without the need for subsidy. See PULP Urges NYSERDA to Use RGGI Auction Revenue to Support Low Income Energy Efficiency Programs, PULP Network, January 7, 2008.

See also, NYSERDA Concept Paper - Operating Plan for Investments in New York under the CO2 Budget Trading Program and the CO2 Allowance Auction Program, which contains a brief mention of low-income energy assistance as a possible use of RGGI revenue, but there is no quantification or any proposed allocation for the purpose.