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Update: Greenhouse Gas Cap-and-Trade in New Jersey

The “cap-and-trade” emissions reduction concept is still a relatively recent phenomenon; one that uses free markets to help further the goal of environmental protection. In short, cap-and-trade limits the amount of air emissions that a facility can discharge into the atmosphere. When a facility emits less than its capped amount, it retains “credits” that can be sold or traded to other facilities, some of which may exceed their own emissions limits. The United States Environmental Protection Agency (“USEPA”) credits Clean Air Act cap-and-trade with cutting sulfur dioxide and nitrogen oxide emissions (compounds that contribute to acid rain), by over 60% since 1990. Despite this cap-and-trade program’s success with regard to acid rain-causing compounds, greenhouse gas emissions cap-and-trade programs have not been as well embraced.

In 2009, the Regional Greenhouse Gas Initiative (“RGGI”) became the nation’s only mandatory carbon cap-and-trade program where mid-Atlantic and northeast states agree to sell greenhouse gas (namely carbon dioxide) emission allowances and invest the proceeds in energy efficiency, renewable energy and other clean energy technologies. In May 2011, Gov. Chris Christie announced that New Jersey would be withdrawing from RGGI, citing the cooperative’s failure in reducing greenhouse emissions, while increasing energy costs to businesses and consumers. The issue resurfaced this summer when Gov. Christie vetoed a bill which would have reinstated the State’s membership in RGGI. In his veto message, Gov. Christie stated that “Energy producers . . . were not incentivized to use lower carbon-based fuels, improve emission controls, or increase efficiencies in production. Indeed, RGGI did nothing more than impose a tax on electricity to be borne by New Jersey’s overburdened taxpayers and ratepayers.”

Just prior to the Governor vetoing the bill, two environmental groups filed a lawsuit challenging the State’s withdrawal as the Governor failed to provide the required public notice and comment period before repealing the legislation. As one RGGI lawsuit in New Jersey begins, one in New York is ending. In June 2011, the interest group Americans for Prosperity filed a lawsuit against the State of New York on the basis that RGGI imposed an “illegal tax on electric ratepayers.” State Supreme Court Justice McNamara stated that the group lacked standing to sue as they failed to demonstrate a “distinct” injury in New York’s participation in RGGI, and the matter was dismissed.

The debate regarding greenhouse gas cap-and-trade programs’ success also extends to the international forum. Recent reports suggest that Chinese and Indian factories have taken advantage of a United Nations and European Union carbon credit program aimed at reducing greenhouse gases. These companies earned tens of millions of dollars per year from the program while actually increasing production of refrigerant gases known to be harmful to the environment. The United Nations and European Union have responded by cutting credits for certain refrigerant gasses, but have faced serious concern over the economic harm to the abundance of companies which now rely on the program’s subsidies.

In short, greenhouse gas cap-and-trade programs have so far proved controversial. While there was consensus that acid rain was reduced by the sulfur dioxide and nitrogen oxide emissions cap-and-trade program, it is not widely accepted that the cost associated with greenhouse emissions cap-and-trade program is worth the benefit of the program, which opponents argue is speculative at best. As it stands, the RGGI initiative is still active, with New Jersey being the only state to have left the program. Time will tell if RGGI’s goal of reducing carbon dioxide emissions from the power sector by ten percent will, in fact, be met by 2018.

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