New Jersey Embraces an Idea it Once Rejected: Make Utilities Pay to Emit Carbon

Source: By BRAD PLUMER, New York Times • Posted: Tuesday, January 30, 2018

Gov. Philip D. Murphy of New Jersey during his inauguration in Trenton on Jan. 16. He has ordered the state to rejoin a regional carbon-trading program. Seth Wenig/Associated Press

WASHINGTON — Even as the Trump administration dismantles climate policies at the federal level, a growing number of Democratic state governors are considering taxing or pricing carbon dioxide emissions within their own borders to tackle global warming.

New Jersey took a major step in that direction Monday, when newly elected Gov. Philip D. Murphy, a Democrat, ordered his state to rejoin a regional carbon-trading program that his Republican predecessor, Chris Christie, had pulled out of in 2012.

The program, known as the Regional Greenhouse Gas Initiative, requires power plants in participating states to buy permits for the carbon dioxide they emit. State officials often use revenue from these permit auctions for energy efficiency programs.

In a so-called cap-and-trade program like this, power plants can trade the carbon permits among themselves, but the overall number of permits dwindles steadily over time. That effectively raises the cost of emitting carbon dioxide, prodding utilities to seek out cleaner sources of electricity.

“Pulling out of R.G.G.I. slowed down progress on lowering emissions and has cost New Jerseyans millions of dollars that could have been used to increase energy efficiency and improve air quality in our communities,” Mr. Murphy said. He estimated that New Jersey had foregone $279 million in permit auction revenue because of Mr. Christie’s withdrawal.

“Five years ago, New Jersey faced Superstorm Sandy,” he added. “That storm and the devastation it brought to our state was an all-too-real look at our new normal if we do not take climate change seriously.”

Nine other states have already imposed a price on carbon dioxide emissions from power plants through R.G.G.I.: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. Separately, California has its own cap-and-trade program that covers not just power plants, but factories, oil refineries and more.

More states could soon join the carbon pricing bandwagon, a trend that many observers see as partly a reaction to the Trump administration’s unwillingness to act on global warming. Last year, in Virginia, former Gov. Terry McAuliffe ordered regulators to explore a cap-and-trade program for the state’s power plants. His successor, Gov. Ralph Northam, has vowed to continue the process, although a separate proposal to link Virginia’s program with R.G.G.I. would likely need to go through the legislature.

In Oregon, state legislators have introduced a bill to create their own statewide cap-and-trade program that might eventually be linked up with those in California, Ontario and Quebec.

And in Washington State, Gov. Jay Inslee, a Democrat, has proposed a direct tax on carbon dioxide emissions from all sources in the state, with the price starting at $20 per ton of carbon dioxide and rising over time. While some of the revenue from the tax would help offset the state’s budget deficit, much of it would be earmarked for clean-energy investments, projects to help the state adapt to floods and wildfires, and programs to cushion low-income residents from increases in energy prices.

Economists have long argued that carbon pricing, either through a direct tax or cap-and-trade, can be an effective tool for reducing the greenhouse gas emissions warming the planet. As fossil fuels become more expensive, the theory goes, businesses and individuals will find creative ways to use less of them.

Yet in the past, politicians have sometimes shied away from carbon pricing for fear that it would raise electricity or gasoline prices for voters who rely heavily on fossil fuels and have few alternatives. When Mr. Christie withdrew New Jersey from R.G.G.I. in 2012, he said the program “does nothing more than tax electricity, tax our citizens, tax our businesses, with no discernible or measurable impact upon our environment.”

In the Northeast, at least, those fears have not been borne out so far. In part because of a glut of cheap natural gas from fracking, as well as the recent boom in wind and solar power, utilities in the R.G.G.I. program have found it relatively easy to retire their dirtiest coal plants and cut pollution at minimal cost. Emissions from electricity in R.G.G.I. states have fallen 40 percent since 2009 — faster than in the rest of the country — while electricity prices have declined 3.9 percent. (Regulators recently tightened the program’s cap to aim for an additional 30 percent cut in power-plant emissions by 2030.)

Some policymakers are also seeking to minimize any backlash from carbon pricing by taking the revenue raised and investing it directly into efficiency measures that can lower household electricity bills or fossil-fuel alternatives, like electric vehicles. Jesse Jenkins, an energy researcher at the Massachusetts Institute of Technology, notes that these investments may end up having a greater impact than the carbon prices themselves, since “real-world carbon prices routinely fall well below what economists typically have in mind.”

Mr. Inslee has opted for that strategy in pushing a carbon tax in Washington after a similar proposal failed at the ballot in 2016. The tax, he said in his State of the State speech, “will allow us to reinvest in all the things that drive down emissions. We can build more solar panels. We can put more electric cars on the road. We can help more Washingtonians purchase energy-saving insulation for their homes and businesses.”

As long as interest in carbon pricing remains confined to a handful of Democratic-led states, it will have only a partial effect on overall emissions in the United States. Taken together, the states that either have or are considering carbon pricing accounted for roughly 21 percent of America’s carbon dioxide emissions in 2015.

Still, Robert Stavins, an energy economist at Harvard University, notes that state-level momentum on carbon pricing could send a message that the United States has not abandoned efforts to address global warming, even as the Trump administration disavows the Paris climate agreement.