Paying to Pollute
Air Date: Week of September 19, 2008
A map of the 10 states participating in RGGI. Pennsylvania, the fourth largest producer of coal in the country, is not a participant. (Courtesy of Deleware.gov)
The Regional Greenhouse Gas Initiative is set to launch the first cap and trade carbon dioxide auction in the United States. Host Bruce Gellerman talks with Jonathan Schrag, executive director of RGGI.
GELLERMAN: You can buy all sorts of stuff in an auction….
GELLERMAN: from prize winning heifers…
GELLERMAN: …and classic cars…
GELLERMAN: …to fine art.
[AUCTIONEER: “…TWICE … SOLD, ONE MILLION FIFTY THOUSAND DOLLARS” ]
GELLERMAN: Well, soon there will be a new auction. The first of its kind in the United States, where they’ll put on the block something you can’t see, you can’t smell, and you can’t touch. But unless we put a price on it, it could poison the planet.
The new auction will determine how much carbon costs - specifically how much it will cost utilities in ten New England and mid-Atlantic states - to emit carbon dioxide into the atmosphere.
The states have banded together to form what’s called RGGI, the Regional Greenhouse Gas Initiative. RGGI has set a cap on the amount of CO2 the utilities can release, and is selling off the rights to pollute at auction. Jonathan Schrag, the Executive Director of RGGI, says the bids utilities placed online will be open September 25th.
SCHRAG: What’s special about it in the world is that it’s the first time there’s an auction. This program will, in fact, put a price on, and begin the process of utilities and all of us understanding the impact that carbon dioxide emissions have on our everyday lives.
GELLERMAN: I understand the goal of putting a price on carbon dioxide. But it does sound a bit strange to offer up a permit and have people pay to pollute.
SCHRAG: Well, you know, I think people thought that way when they were told they had to stop throwing their sewage out of the window too, and that they needed to start paying for the sanitation department trucks to come by and pick garbage up. Fundamentally, this is a question of awareness. It’s understanding that the country’s dependence on fossil fuels creates an externality of carbon dioxide emissions which needs to be managed and needs to be understood and recognized as the cost that it is. That’s not to say that fossil fuels don’t have a role in the overall energy economy. It’s that those resources need to compete with other energy resources on a fair playing field, one in which the carbon dioxide emissions have a cost.
GELLERMAN: So a utility buys an allowance, buys a ton or more of carbon dioxide, and then they’re supposed to use that money to reduce the amount of carbon dioxide they’re emitting? Is that right?
SCHARG: No. The money that’s going to be earned will go to the states. And the states will use the money through strategic investment into a number of initiatives related to energy efficiency, renewable energy, and other energy-related consumer benefit programs. So, the utility will buy an allowance and will hold that allowance. At the end of 2011, the end of the first three-year compliance period, they need to produce the number of allowances for all of the tons of carbon dioxide they have been emitting over that three-year period. If they don’t have enough, they get a big fine. If they have too many, they can sell them back into the market.
GELLERMAN: Now when this was set up a couple of years ago, you were expecting to have what – the limit 188 million tons of carbon dioxide, but, because of certain factors, right now we’re producing a lot less carbon dioxide.
SCHARG: We’re producing about ten percent less than we had anticipated, the region is. And that’s related to some short-term factors: the weather, the relative price of fuels, switching from higher carbon to lower carbon fuels, and those are short-term trends. We’re focused on building a long-term market, and so the contribution that RGGI is making is getting that infrastructure of a cap-and-trade system into place.
GELLERMAN: So utilities bid on these carbon dioxide emissions. The money goes to the states, and they’re supposed to do energy efficiency kind of things. Where does somebody like me fit into this picture? Do I wind up paying for this? I got a feeling, I do.
SCHARG: Yeah, you’ll pay about a dollar a month more in the near term. In the long term, you’re going to save. Because if you don’t have RGGI, you’re going to be asked to pay for new power plants to meet higher load. And what RGGI is doing, by making its strategic investments in energy efficiency, is reducing the need to build new power plants.
GELLERMAN: If I wanted to could I go online and place a bid for a ton of carbon dioxide?
SCHARG: If you’d gotten an application in by August 8th, you could have. You certainly can participate in the next auction, which will be December 17th. We welcome anyone. Organizations, individuals, financial, institutions, manufacturers, utilities. It’s wide open and not just to the United States, anyone internationally.
GELLERMAN: You know there are a lot of failing financial institutions on Wall Street and the financial centers around the world and they’ve got a lot of carbon dioxide credits in their portfolio. How does that affect the price that you hope you guys get for your carbon dioxide emissions?
SCHARG: Well, I suspect that just the same way that the weather or the relative price of fuels would affect the auction price, similarly the fact that our auction is occurring relatively close in time to a burp on Wall Street and a major disruption in the U.S. financial system, that might take some bidders out of the auction. We have enough participation from enough sectors that we expect a very robust and competitive auction. We think we’re stable enough to weather the storm.
GELLERMAN: I know that many other states and places around the world are closely watching this auction to see how it goes.
SCHARG: Well, you know, we’re trying hard to make it a success. I can say there wasn’t a lot of vacation this summer for the RGGI state staff. And I’m sure there’re gonna be things that on Monday morning we wish we would have done differently.
GELLERMAN: Well Mr. Schrag, good luck with your auction.
SCHARG: Thanks so much. Thanks for having me.
GELLERMAN: Jonathan Schrag is the Executive Director of the Regional Greenhouse Gas Initiative Incorporated, or RGGI.
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