As federal policy makers push for GHG regulation and transparent markets, the California experience shows what works and what doesn’t work.
Carbon and the Constitution
State GHG policies confront federal roadblocks.
leakage will occur as CO 2-producing activities that are regulated and limited under a particular region’s program move outside that region, thereby eliminating net reductions in emissions due to the shift of generation location. Developers in non-carbon-regulated states will have economic incentives to build and operate CO 2-emitting facilities where they do not have to incur the cost of acquiring allowances and complying with regulations. This results in negating the environmental improvements that would otherwise result from the carbon-reduction program. 23 For example, since RGGI includes East Coast states, the plants outside the RGGI region are to the west and south—or upwind in terms of migration of power plant emissions. A shift to out-of-region generation is a shift to additional up-wind pollutants from heavier operating polluting power plants, producing electricity that otherwise would have been generated by cleaner RGGI-region compliant projects.
The results of modeling commissioned by the RGGI Staff Working Group found that a substantial proportion of CO 2 emissions avoided by RGGI will be offset by corresponding increases in non-RGGI states. Leakage from neighboring states like Pennsylvania is a significant concern with RGGI. RGGI is projected to have a significant leakage problem even if CO 2 allowances sell for only the modest price of $7 per ton of CO 2. The early RGGI modeling showed leakage as high as 90 percent of power depending on the programmatic assumptions. The final models predict annual leakage of CO 2 of between 40 percent and 57 percent over the life of the RGGI program.
An increase of unregulated power imports from uncapped coal-fired plants in states such as Ohio and Pennsylvania of even 1.5 percent to 2.5 percent would wipe out all scheduled emissions reductions from regulated generators within the carbon-regulated RGGI region. 24 RGGI states such as New Jersey, New York, Maryland and Delaware are bordered by states that are not signatories to RGGI and historically produce a large volume of electricity from coal-fired power plants. There are multi-billion dollar projects proceeding to build electric transmission infrastructure that would allow electricity generated by high-carbon-emission coal-fired power plants to travel east into the RGGI region.
The largest of these projects is the American Electric Power (AEP) Interstate Project, which would put in place a 765-kV transmission line stretching from West Virginia to New Jersey. The Trans-Allegheny Interstate Line (TrAIL) Project, being undertaken by Allegheny Power to enhance transmission capability from western Pennsylvania to Maryland and Virginia, and the Meadow Brook-Loudon 500-kV line proposed by Dominion Resources to carry power into the Washington, D.C., metropolitan area, are other examples.
Existing RGGI state leakage-control efforts are underway. The New Jersey energy regulator is required to develop a plan to reduce leakage of power into the state by July 2009. Public Service Electric & Gas Company (PSEG) proposed a plan to have New Jersey curtail imports of high-carbon power from out-of-state cheaper power suppliers by requiring regulated retailers to purchase a certain amount of power from RGGI-covered suppliers. 25 Even at a modest auction price of $6.35 per ton for RGGI allowances, the rationale is that