Governor Chris Christie Pulls the Plug on Cap-and-Trade Program

Last Thursday Chris Christie, the Republican governor of New Jersey, made yet another controversial decision; one that, not surprisingly, tickled many Republicans and irritated most Democrats.  After less than three years of participation, Christie announced that New Jersey would pull out of the Regional Greenhouse Gas Initiative by the end of the year.

The Regional Greenhouse Gas Initiative (RGGI) is a cap-and-trade program and is the first market based carbon dioxide emissions reduction program in the U.S.  The goal of the program, whose first auction of emissions allowances took place in September 2008, was to cut carbon dioxide emissions in the ten participating states by 10% by 2018.  Until last week, when New Jersey declared its intent to exit, member states were as follows: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont.  

Cap and trade systems are a market-based policy mechanism designed to reduce various types of pollution.  Successful programs have been launched in the past to curb emissions of sulphur dioxide and nitrogen oxide.  In a cap and trade system, an initial cap of the total emissions permissible by all participants must first be set.  Allowances (permits to emit a certain unit of the pollutant) are then auctioned off by the participants (the states, in this case) to businesses that emit that specific pollutant (power plants).  Businesses are able to either use less allowances than they have purchased, or continue to emit the pollutant at a level exceeding the allowances they have purchased.  Businesses are rewarded for using fewer allowances as any leftover allowances can be saved for later use or sold.  Firms that choose to pollute above the amount permitted must purchase additional allowances; hence further increasing their operating costs.  This creates an incentive for companies to be more energy efficient and to pollute less.  Periodically, the total number of allowances auctioned by the participants is lowered, until the overall reduction goal is met.  States are to use the proceeds garnered from the auctions to invest in improved energy efficiency and renewable energy development.

Chris Christie’s decision makes New Jersey the first state to withdraw from the agreement.  Though there has been some speculation of lawsuits and challenges to his decision to exit the initiative, most seem to agree that he does have the authority to remove New Jersey from the coalition.  Shortly after news broke regarding Christie’s decision, the remaining nine states in RGGI released a statement reaffirming their continued commitment to the program.

Christie, who last year denounced the science of global warming, has at least finally come around to believing that human activity is a leading factor in climate change.  He asserts this decision came about not because he is against protecting the environment, but rather because New Jersey has already lowered emissions of carbon dioxide and Christie believes the program to be ineffective.  

A press release written by the New Jersey State Department on the same day as Christie made his decision states that in 2008 the state lowered greenhouse gas emissions by 8%.  That means it has already met the goals outlined by the state’s own Global Warming Response Act.  And, according to Christie there are many reasons why the program is a purported failure.  He was quoted saying “RGGI does nothing more than tax electricity, tax our citizens, tax our businesses, with no discernible or measurable impact upon our environment.”  Yet he has also stated that the price that carbon allowances were auctioned off at has been too low to encourage companies to emit less carbon dioxide.

Christie asserts that he is still devoted to lowering emissions in his state, but no longer believes RGGI is the way to go about it.  He intends to move forward with plans to install solar panels on landfills and to disallow any new proposed coal plants.  However, critics report bowing out of RGGI was a bad move for the environment.  They state that just because the state’s power plants reduced emissions in one year by burning more natural gas and less coal does not guarantee future emission reductions.  If the economy picks up, so would the demand for energy.  If power plants are facing higher demands, the cap-and-trade system would encourage them to operate as efficiently as possible.  Also, the price of natural gas could always increase.  If burning coal suddenly becomes cheaper than burning natural gas and there is no cap-and-trade system in place to limit plants’ carbon dioxide emissions, plants will simply return to burning coal for energy and the amount of emissions will soar.

What remains to be seen is how democrats in the state of New Jersey will fight back, if other states will try to mirror New Jersey’s actions, and how Christie’s decision may impact the formation of other cap-and-trade systems developing elsewhere in the country.

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