Jessyca Sheehan, director, is a member of APCO’s global energy and clean tech practice
As detailed in a post earlier this month, California Governor Jerry Brown is making headlines with his proposal to borrow $500 million in cap-and-trade auction revenues to help address state budget shortfalls. While this proposal is not yet a done deal – the State Legislative Analyst’s Office has said using auction funds for non-climate mitigation purposes is illegal, and the Legislature must still approve the plan – it does point to a troubling trend and begs the question: how much of an impact can cap-and-trade actually have on climate mitigation?
A cap-and-trade program known as the Regional Greenhouse Gas Initiative (R.G.G.I.) has been operational in 10 New England and Mid-Atlantic states from Delaware to Maine for several years now. While limited to the electricity sector, auction revenues are intended to fund environmental and conservation projects that help save energy and reduce greenhouse gas emissions, similar to California’s cap-and-trade funding requirements.
Yet, three of the participating states have instead diverted funds to compensate for state budget gaps: New York, New Jersey and New Hampshire. State officials point to the recession as the primary reason for this funding shift, and stress that – unlike California – R.G.G.I. only requires participating states to use a quarter of auction revenues on climate mitigation programs, which all states have done.
This worrisome trend is not limited to the U.S. There is trouble across the pond as well. The price of carbon in Europe has collapsed, undermining the goals of cap-and-trade and resulting in declining auction revenues. Of note, the global recession has been cited as the key culprit there as well, as industrial activities, and thereby emissions, have decreased during these tough economic times.
The result is less money for budget-strapped countries to use on climate mitigation programs. Germany, for example, has announced plans to cancel several key programs that were positioned as instrumental to its transition toward cleaner energy sources, in light of funding shortfalls and other budget pressures.
So what does all this mean? For cap-and–trade supporters, the promise of its ability to have a meaningful impact on greenhouse gas emissions and the move to a cleaner energy economy is being challenged in dollars and cents. Not only is this discouraging news for those regions already participating in cap-and-trade, but undoubtedly puts future carbon trading systems that much farther out of reach.