Governor Pushes New Jersey to Rejoin Greenhouse Gas Initiative

Published March 1, 2018

Gov. Phil Murphy of New Jersey signed an executive order mandating the state’s Department of Environmental Protection (DEP) and Board of Public Utilities take the steps necessary for New Jersey to rejoin the Regional Greenhouse Gas Initiative (RGGI), a group of northeastern states that formed the nation’s first mandatory cap-and-trade program for manmade greenhouse gases in 2007.

Murphy’s action reversed the decision of his predecessor, Gov. Chris Christie, who withdrew the state from RGGI in 2011. New Jersey is the only state to have pulled out of RGGI so far.

RGGI’s other members are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

Joined by First Lady Tammy Murphy, DEP Commissioner Catherine McCabe, and a group of state environmental and political leaders, Murphy announced his decision to rejoin RGGI on January 29, at a press event in Atlantic Heights.

McCabe, who served in the U.S. Environmental Protection Agency under President Barack Obama, will be tasked with proposing regulations for New Jersey to administer RGGI, set up a system to participate in the regional auctions for carbon emission credits, and reestablish a New Jersey RGGI program in consultation with other RGGI states. The state legislature, with solid Democratic majorities in both houses, will have to enact legislation to bring Murphy’s proposal into full legal force.

Revised Targets, Falling Prices

The original objective of RGGI was to reduce the carbon emissions from each member state’s electricity power sector 10 percent below its 2009 level by 2018. However, the combined effect of lower natural gas prices, made possible by hydraulic fracturing (fracking) and horizontal drilling in shale formations, and the requirements of state renewable portfolio standards have resulted in regional carbon dioxide emissions falling below the original RGGI cap.

As a result, in 2014 the cap was tightened to 45 percent below 2009 levels by 2018, requiring an additional 2.5 percent reduction annually through 2020.

RGGI holds quarterly auctions of carbon dioxide allowances. Electricity providers buy permits at the auctions, and the costs are passed on to customers in their power bills.

According to the Caesar Rodney Institute, Delaware’s participation in RGGI added more than $28 million to power bills in the state since its inception. Data from the U.S. Energy Information Administration and the Massachusetts Department of Energy Resources show the RGGI auction price for permission to emit carbon dioxide declined from a peak of $7.50 per ton in December 2015 to just $3.80 per ton in December 2017. Proceeds raised from the auctions typically go to programs promoting energy efficiency, greenhouse-gas abatement, and the administration of RGGI.

Virginia in Play

Bills pushed by RGGI supporters, including Virginia Gov. Ralph Northam (D), in the Virginia General Assembly to allow the state to join RGGI were stopped in committee early in 2018.

Separate measures, one requiring the General Assembly’s approval before joining RGGI and a second prohibiting the state from setting greenhouse gas restrictions stricter than federal limits, have been introduced in the legislature. Northam has said he opposes the bills, indicating a likely veto should they pass.

To bypass the legislature, Northam and other RGGI supporters are pushing a backdoor regulatory path to RGGI participation, encouraging Virginia’s Department of Environmental Quality (DEQ) to draft rules limiting greenhouse gases and setting up a trading regime with RGGI. Critics of this move have warned any DEQ action to implement RGGI membership administratively will face a certain court challenge.

‘Considerable Harm’

Tim Benson, a policy analyst at The Heartland Institute, which publishes Environment & Climate News, says carbon-dioxide restrictions hurt the poor and cause taxpayers to leave the state.

“Cap-and-trade programs like RGGI do considerable harm to low-income families, as do all regressive tax schemes,” Benson said. “New Jersey is hemorrhaging people faster than just about any other state in the country, because of high taxes and high costs of living, which will be made higher by membership in the quixotic RGGI scheme.”

Slowing Economic Growth

Jordan McGillis, a policy analyst with the Institute for Energy Research, says rejoining RGGI would hamper New Jersey’s economic growth.

“Gov. Murphy’s decision to opt New Jersey back into RGGI is a surefire way to slow the state’s economic growth,” McGillis said. “A 2017 Cato Institute report shows RGGI members’ economic growth tracked below the national average from 2007 to 2014, far below the growth of comparable states like Ohio and Illinois.

“And if history is any indicator, the cost will come with little or no benefit,” said McGillis. “In the absence of a global or even national emissions-reduction regime, businesses will move their operations to other locations, and greenhouse-gas emission will thus be ‘leaked’ from jurisdictions with stringent emissions controls to those with less-stringent controls.”

Pennsylvania will likely benefit if New Jersey rejoins the pact, says McGillis.

“In this case, New Jersey’s neighbor Pennsylvania is a likely beneficiary,” McGillis said. “RGGI members tout a 40 percent reduction in emissions from electric generating units from 2007 to 2015, but they also have a 35 percent reduction in in the production of energy-intensive goods.”                                     

‘Huge Competitive Disadvantage’

Craig Rucker, executive director of the Committee for a Constructive Tomorrow, says RGGI member states are much less attractive to job-creating businesses.

“RGGI states are putting themselves at a huge competitive disadvantage, for absolutely no environmental gain whatsoever,” said Rucker. “What company considering opening a manufacturing plant would locate in an RGGI state when the regulatory environment is so much friendlier elsewhere?”

Bonner R. Cohen, Ph.D. ([email protected]) is a senior fellow at the National Center for Public Policy Research.