Snags delay next steps with RGGI

Rhode Island will probably not participate in the first regional auction for greenhouse-gas pollution allowances, as Gov. Donald L. Carcieri’s administration and the General Assembly have yet to hammer out a plan for participating in the credit-trading program.
The auction, tentatively scheduled for June, will be the first opportunity for states participating in the Regional Greenhouse Gas Initiative to raise money for energy conservation and renewable energy initiatives by selling carbon-emissions allowances to power companies.
The RGGI pact, which includes 10 Northeastern states, aims to reduce carbon dioxide emissions linked to global warming by 10 percent by 2019.
Massachusetts, Connecticut and New York are blazing the trail in the RGGI initiative, the first emissions trading program in the United States. Those states have targeted June for the first auction under the program, which does not officially launch until 2009.
Rhode Island probably won’t be ready to participate in the first auction, regardless of how many other states do, said Michael Sullivan, director of the R.I. Department of Environmental Management.
“It’s not my intention at this point in time to have any of Rhode Island’s carbon credits in the sale at that time,” Sullivan said. “I’m not going to agree to make a sale without a place to park the money, and a program designed to implement the intents of the program.”
In fact, Sullivan said the DEM, which is charged with overseeing Rhode Island’s participation in the RGGI initiative, may decide not to participate in the group auction of carbon allowances, but instead to hold its own auction.
Sullivan and Andrew Dzykewicz, head of the R.I. Office of Energy Resources, have said since Rhode Island joined RGGI early this year that they would like flexibility to auction Rhode Island’s emissions allowances in an arena that promises to return the most profit for the state. Holding its own auction might be the best course of action for Rhode Island, Sullivan said.
“It is not inconceivable to us that we might be able to do a public sale for purchasing in Rhode Island and gain a better return on our money than through a combined sale,” he said. “So the devil of the details – how do we get the most money from the program – is still under consideration.”
Selling its emissions allowances at top dollar is seen as crucial by many, because the state’s participation in RGGI is expected to increase energy costs in the state in the short term. Rhode Island was the last New England state to sign onto the emissions-reduction agreement, which also includes Maine, Vermont, New Hampshire, Connecticut, New Jersey, Maryland and Delaware. Carcieri agreed to join the pact after his energy and environmental advisers concluded that RGGI would push up energy prices in Rhode Island regardless of the state’s participation.
The theory behind RGGI and similar emissions-trading programs in Europe is that energy prices will decrease in the long term as governments use money earned through the program to invest in energy conservation and renewable energy.
This spring, the General Assembly passed a law that mandated the state invest its RGGI proceeds in conservation and renewable initiatives, and called for the creation of a power authority or other entity to administer the program. But the General Assembly failed to enact legislation that would have created the power authority, amid confusion about the authority’s scope during marathon budget negotiations.
That has left Carcieri’s administration in a bit of a lurch, with a mandate to participate in RGGI but without the necessary guidelines for how to administer the program, Sullivan said.
The R.I. Economic Development Corporation, which has the authority to hold money and make contracts, could assume the responsibility of administering RGGI. But neither the EDC nor the DEM has staff trained in market trading, Sullivan said.
“We need the General Assembly to reconcile the statute with the realities right now,” he said.
Sullivan said he plans to meet several times in coming weeks to nail down the details of RGGI’s implementation with Sen. V. Susan Sosnowski, D-South Kingstown, and Rep. Jan P. Malik, D-Warren, who chair the relevant Senate and House committees.
But there are several other logistical issues that need to be resolved in addition to the question of whether RGGI auction proceeds will be handled by a power au
thority or other entity, Sullivan said.
In particular, DEM lawyers are currently reviewing whether Sullivan’s and Dzykewicz’ fiduciary responsibilities as directors of RGGI’s corporate entity would present a conflict of interest if the corporation’s financial interests did not coincide with Rhode Island’s, Sullivan said.
Rhode Island’s allocation of allowances it can auction under the RGGI program is 2.6 million tons of carbon – a figure based on the amount of carbon emitted by the state’s power plants. In comparison, Massachusetts’ allowances represent more than 25 million tons.
Because Rhode Island is a small player in the RGGI accord, the state has the luxury of sitting out the first auction, Sullivan said. Rhode Island will have ample opportunity to sell its allowances in future auctions, and should take its time to make sure it has a program in place to maximize its RGGI profits, he said.
“It’s a fairly small amount of money but not an insignificant program, and we want to make sure that everything goes smoothly,” Sullivan said. “Any time you do a credits sale, whether it is carbon credits or energy futures – you know, I have no desire to see this become an Enron-like scheme. So the devil is in the details. I think we’re in a good place.” •