State considers cap, trade plan solution to CO2

BANGOR – Maine officials are debating whether to follow the lead of other Northeastern states hoping to generate a financial windfall from a regional pact to curb greenhouse gas emissions from power plants.

Eight states including Maine have signed onto a first-in-the-nation agreement that aims to cap and then reduce by 10 percent carbon dioxide emissions from power plants by 2019.

Participating states are allowed to tailor some aspects of the plan to their needs. One of the biggest policy issues left to the states’ discretion is whether to sell off CO2 emissions “allowances” to power plants or to offer most of them to the producers at no cost.

Selling these allowances would generate millions of dollars – an estimated $12 million to $30 million in Maine’s case – for states’ energy-conservation programs. But critics of the plan contend the costs will ultimately come out of electric ratepayers’ pockets and could put some of Maine’s larger paper mills at a competitive disadvantage.

“We want to get it right and get a system that works but also that will make it through the policy process,” David Littell, commissioner of the Maine Department of Environmental Protection, told about two dozen people attending a workshop Thursday in Bangor on the Regional Greenhouse Gas Initiative.

A fourth and final work session will be held Dec. 19 at the Augusta Civic Center before DEP staff present their recommendations to the Legislature.

The multi-state initiative, known as RGGI or “Reggie” for short, takes a less heavy-handed approach to encourage power generators to reduce emissions of CO2, a byproduct of fossil fuel combustion that is a primary culprit in global warming.

Under a cap-and-trade system, the states set limits by allotting a certain number of emissions “allowances” to each plant based on past emission levels. Plants are then required to reduce their CO2 levels by 10 percent between 2009 and 2019.

Power plants that are more efficient than required can either bank the excess allowances for future use or sell them to plants exceeding their limits. Producers can also earn credit by investing in other greenhouse gas reduction projects.

This market-based approach is regarded as more flexible than forced regulation because it offers companies a financial incentive to go beyond their emissions goals.

RGGI rules require Maine to sell off at least 25 percent of its 6 million allowances to fund energy-conservation programs. But states can opt to sell up to 100 percent of their allowances, in effect forcing power plants to pay up front for the right to emit CO2.

With an anticipated price tag of $2 to $5 per allowance, Maine would receive up to $30 million for energy conservation programs if it sold all of its allowances. Vermont and New York have already decided to sell 100 percent, and other states are considering following suit.

That sounds like the ideal solution to Steve Hinchman, staff attorney with the Conservation Law Foundation in Brunswick.

Money from the sale could be funneled into Efficiency Maine, which encourages household energy savings, or help fund programs to develop Maine-grown biofuels. Some money could also be re-allocated to power plants for facility upgrades, he said.

“We can get the best economic benefit, the most CO2 reduction and do the most for Maine,” he said Friday.

Not surprisingly, power plants would rather receive the allowances free of charge.

James Brooks, the director of the DEP’s Bureau of Air Quality, said power generators have expressed concern about paying for both the allowances and the cost of improving efficiency. Power plant officials have also told Brooks that they will be forced to raise rates if allowances are sold.

The DEP estimates that the average household’s annual electric bill in Maine will increase between $3 and $22 as a result of the initiative.

But representatives of the Maine Public Advocate’s Office have rejected the power producers’ argument. In reality, rates will rise regardless even if the state withdrew from RGGI because Maine is part of the ISO New England power grid.

“This is because ISO New England’s bid-based market system will incorporate in regional prices the cost of CO2 allowances, and Mainers have no present alternative to paying those wholesale prices in their monthly power bills,” Maine Public Advocate Stephen Ward wrote in a newsletter from the Maine Center for Economic Policy.

“If ratepayers are stuck with paying these compliance costs, we certainly should insist on a full share of RGGI’s public benefit allocation and get no less than 100 percent of the proceeds from the sale of the allowances.”

Operators of some of Maine’s larger paper mills, on the other hand, oppose the sale proposal because they claim it will put mills at a greater competitive disadvantage in the international market.

Both of Verso Paper’s mills in Bucksport and Jay would be subject to the RGGI reductions because they generate power. But Ken Gallant, environmental manager for Verso in Bucksport, said his mill is already operating at maximum efficiency.

The plant burns natural gas to generate electricity for the mills, with excess going back into the power grid. Latent heat from the process is also used in the paper-making process.

Gallant said unlike utilities which can vary production levels depending on demand, the Bucksport mill operates around the clock. Unveiled five years ago, the $103 million co-generation facility is already emitting 25 percent less CO2 than in 1990 and cannot get much more efficient, he said.

That means the company will have to buy more allowances to meet their reduction goals – costs that Gallant said cannot easily be passed along to the consumer in the ultra-competitive paper industry.

“If we don’t run the gas turbine, we can’t run the mill,” Gallant said. “So we don’t have the option of reducing emissions.”