Mixed Signals Sent by Governors Raiding RGGI and Clean Energy Budgets

Mixed Signals Sent by Governors Raiding RGGI and Clean Energy Budgets

March 23, 2010 11:15

In the past, we've explored the importance of regulatory certainty and the challenges posed by regulatory uncertainty.  Whether financing clean tech and renewable energy projects or deciding which states provide the best incentives for manufacturers and developers of such emerging technologies and renewable projects, a state's regulatory environment plays a critical role.  This is why recent actions by some governors to move money out of the budgets designated for clean tech and renewable energy or energy efficiency projects for use in closing budget gaps raises a concern. 

As known to readers of our climatelawyers blog, the Regional Greenhouse Gas Initiative (RGGI) was the first mandatory regional cooperative in North America through which ten signatory states in the northeast have committed to cap and then reduce carbon dioxide emissions by setting carbon emission limits on the power industry.  The compliance period began in 2009.  As discussed in a blog entry from September 2009 just after the results of the 5th auction were announced, we posited that the drop in auction prices from the 3rd Auction to the 5th auction may be attributable to the regulatory uncertainty then-apparent as to the future of RGGI in light of the draft climate and energy legislation that was working its way through Congress at the time.  To the extent that the regulatory programs in place provide market signals and some certainty as to the commitment of the RGGI member states to promoting clean tech, renewable energy, and energy efficiency measures, the raiding of these funds creates the opposite effect: it dilutes the efficacy of the regional cap and trade program and sends mixed signals to the very industries that RGGI was intended to encourage.
Revenues from the RGGI auctions were specifically designed to help the member states further the goals of the regional cap and trade program and to encourage new clean tech industries to settle in these states, create more jobs in the green and clean tech space, implement greenhouse gas emission reduction and energy efficiency measures, and help customers struggling with energy bills.  As indicated in a press release issued by Governor Paterson in December 2008 following New York's participation in the RGGI auction process, "[t]he RGGI regulations require that the New York State Energy Research and Development Authority (NYSERDA) use the proceeds for energy efficiency, renewable energy, programs to reduce greenhouse gas emissions in other sectors of the economy and other initiatives."  In the spring of 2009, NYSERDA approved a plan to invest the RGGI funds.  In December, the New York legislature approved New York's Governor Paterson's proposal to raid the RGGI auction fund, moving $90 million of New York's then-share of the RGGI money (which, at the time comprised half of the total $180 million allocated to New York from the auction proceeds) to the State's general fund to cover the State's budget shortfall.  Following suit, just last week, New Jersey's Governor Christie decided to move $65 million raised through the RGGI auctions (the full amount allocated to New Jersey from the RGGI auctions to date) from the Global Warming Solutions Fund to the general fund to help address the State's deficit.  Connecticut is now contemplating moving money from funds reserved for energy programs to help address its budget shortfall.  In contrast, Rhode Island announced last week that it will not shift RGGI money to fill that state's budget shortfall, noting that state law prevents the governor from moving the nearly $9.3 million received by Rhode Island through the RGGI auctions away from the intended purpose of energy efficiency and renewable energy projects. 
No one disputes the reality that the current economy forces states to make difficult decisions.  However, raiding funds that were created through state and regional programs specifically to encourage energy efficiency, renewable energy, and clean tech initiatives creates further regulatory uncertainty when developers and entrepreneurs in these fields require reduction of regulatory risk in order to commit to enter a state and compete in this still-emerging market.  It also sets a troubling precedent and casts a cloud over the potential efficacy of future cap and trade programs proposed on a federal level absent, of course, measures incorporated into such pending federal legislation that prohibits such behavior.  So, while some may think that only environmentalists are opposed to the recent efforts by certain states to address their budget shortfalls by raiding energy efficiency, clean tech and renewable energy funds, there is another significant sector adversely impacted by this behavior: the very industries and entrepreneurs who are looking for regulatory signals that encourage such companies to enter the marketplace and compete globally in the renewable energy, efficiency, and clean tech sectors.

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The business case for the development of renewable energy projects, from biodiesel and ethanol to wind, solar, and distributed generation, is more compelling than ever as tax and regulatory incentives combine to attract investments. Emerging issues in environmental law and increasingly recognized principles of corporate social responsibility are encouraging public companies to voluntarily reduce greenhouse gas emissions, install clean energy alternatives, and invest overseas in projects under the Kyoto Protocol to respond to climate change concerns.

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