Strengthening Energy Policy in the Northeast Region

Workshop Summary

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The Alternative Energy Future

The second of the regional stakeholder workshops was held in the Northeast Region, which has a rich history of creating regional-based policy to face environmental challenges. The New England states, later joined by New York and New Jersey, formed the NESCAUM association in 1967 to address air pollution from the region’s power plants. Later, Northeast states created the regional cap-and-trade NOx Budget Program to address interstate transport of the pollutant. The Northeast and mid-Atlantic states are currently home to the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade emissions reduction program for carbon dioxide. The Northeast Region is an environmental policy innovator in a number of senses. As the first region in the US to implement a cap-and-trade program for carbon emissions, it is a leader in its willingness and capacity to address climate change. RGGI, which has been consistently revised and improved since it began in 2009, also aims to serve as a model for the design of other market-based emissions programs domestically and abroad. The European Union Emissions Trading System, for example, has implemented policy design innovations following RGGI. Finally, the Northeast is an innovator in regional policy cooperation, integrating states with heterogeneous economies and policy landscapes. Workshop participants, particularly those from Massachusetts, frequently referenced the Northeast’s experience as a first mover on climate policy and many drew from this experience a broader perspective of the ways in which local actions can be leveraged to effect broader change.

The Northeast also stands out from many other US regions in its political capacity to pursue environmental policy objectives. This is thanks in part to the specific energy industry dynamics in the region. The Northeast, and particularly New England, consumes only a small share of energy from coal, with electricity mainly coming from natural gas and nuclear plants. As workshop participants noted, the future development of New England’s energy industry relies primarily on renewables. Thus, the Northeast is better positioned than many to deal with the shift towards a lower carbon-intensity economy.

What are the characteristics of a successful climate policy?

Workshop participants were asked to consider, based on the region’s experience with the Clean Air Act and its own state- and regional-level policy, how a successful climate policy might look. Participants generally agreed with the conclusions reached by the project team in their analysis of the Clean Air Act, particularly that durability and adaptability are essential to a program’s success but are a challenge to achieve given the inherent uncertainty involved in predicting the effects of climate change. However, they pointed out that durability does not require policy certainty, and the predictability of a policy commitment is sufficient to provide stakeholders with the signals that inform long-term investments while also allowing policy to adapt to new information. Some participants also called into question what durability means in the context of climate policy, since achieving the necessary deep decarbonization to meet emission reduction goals requires such a major economic transformation that policies in place in the early stages of the transformation may not be useful in later stages.

Workshop participants discussed another element they believed to be central to durability: the intertwining of regulations and their effects. Participants emphasized the importance of system-based policies, which create political coalitions and provide support to regulatory structures. They recalled as an example the intertwining of catalytic converters and lead in the Clean Air Act, which created an industry coalition that was better off under the restrictions on lead in gasoline and helped accelerate the lead phasedown. Intertwining was also applied to an issue that many participants view as being a central challenge for climate policy: the separation of environmental and energy spheres. Participants called attention to the regular creation of separate silos for environmental policy and energy regulation and suggested that intertwining environmental and energy policy is necessary to bring about major economic changes such as vehicle electrification. Some participants noted the advantage of the market-based approaches of the NOx Budget Program and RGGI in this context, as they enabled the relatively seamless weaving of environmental constraints into New England's electricity market. Additionally, participants observed that state public utility commissions tend to be more conservative and rigid than departments of environmental protection, and they act to meet policy goals at a slower pace. Therefore, some saw opportunities for expanded citizen involvement in the integrated resource planning process, which could help weave environmental goals into regulated electricity markets. Customers are already expressing interest in such engagement through mechanisms like community solar projects.

Process, though often overlooked, was frequently mentioned at the workshop as a critical element of any policy. Process enhances durability and adaptability by allowing for stakeholder engagement, which builds coalitions and provides mechanisms for quality control. Participants noted that the involvement of stakeholders in the policymaking process improves results and lends a greater permanence to policies, making successful policies more difficult to unwind. Some participants also argued that in certain capacities RGGI serves as a better model of process than the Clean Air Act. They noted RGGI's good record of routinely making policy corrections based on empirical facts and stakeholder input and pointed out that the process baked into the Clean Air Act has not allowed for the same degree of adjustment over time. Additionally, participants discussed the important role courts play in process, concluding that judicial review under the Clean Air Act has been key to its adaptability. However, looking forward some participants expressed concern that challenges in the courts may ultimately slow progress on implementing effective policies to address climate change.

Participants also discussed the merits of market-based programs. In addition to providing flexibility for compliance entities—another key policy feature identified in the project team's Clean Air Act analysis—market-based programs can catalyze adaptation to new information or economic conditions. Participants pointed out that market-based programs like RGGI hold the advantage of containing built-in adaptability mechanisms. These mechanisms allow a program to automatically adapt to certain unanticipated conditions such as economic shocks or changes in mitigation costs, without requiring a new regulatory or legislative intervention. Adaptability mechanisms built into RGGI include the allowance price floor, a minimum price below which no allowances may be sold, and the emissions containment reserve, a price-responsive allowance supply mechanism that addresses low allowance prices.

What is the preferred form of a future climate policy?

When workshop participants were asked whether a future climate policy should exist within the existing Clean Air Act framework or be formed through sweeping new legislation, they saw both options as politically infeasible in the next decade. Participants overwhelmingly opted for what they saw as a more realistic third option in the near term, in which states continue designing and implementing their own climate policies. Although participants generally did not expect that a state approach would lead to the same level of emissions reductions as a federal approach might, many participants did see value in a near-term state approach as more than a stopgap measure. The participants' confidence in this approach, and in the broader power of states to lead and catalyze changes beyond their borders, reflected the region's experiences implementing environmental policy in part as a response to inaction at the federal level.

A near-term reliance on states to drive policy raises the question of why states choose to develop climate policies, given the fact that climate mitigation imposes local costs and provides diffuse benefits. The Northeast Region's energy resource mix has played a role in its pursuit of relatively stringent climate policies, but participants pointed out that market trends are causing climate policies to make more economic sense in a broader range of states. As an illustration, participants referred to the growing economic opportunities of wind generation in states like Texas and Iowa that have lagged in addressing climate change. They suggested that climate policy—both in terms of design and messaging—should involve economic objectives and not rely solely on environmental objectives, calling again on the importance of intertwining energy and environmental spheres. Participants also acknowledged the costs that climate policies impose on local economies, and some suggested that policies should include provisions to aid businesses and households harmed during the economic transition away from carbon-intensive industries. For example, RGGI has dedicated a portion of allowance revenues to communities in Massachusetts that have experienced coal plant closures.

Participants also discussed the specific advantages and drawbacks of a state-based approach. Many participants argued that the durability of climate policy can be enhanced by originating at the state level, because states can effectively serve as laboratories in which to improve policy design and develop constituencies. States can also serve as stewards of process by engaging stakeholders in the process of implementing and updating policies. Robust process beginning at the state level can help build broader constituencies to support future national-level policy. Participants also noted that state-level policymaking can benefit from bipartisan cooperation in a way that is less likely at the federal level, as policy discussions at the state level tend to be less ideology-driven. Participants acknowledged that one drawback of the state approach is the coordination problem that may arise as states become siloed into their own policy development. However, they posited that RGGI serves as a demonstration that successful regional cooperation is possible despite the heterogeneity in member states’ economies and existing policies. Some participants suggested that they would like to see a form of RGGI-style coordination for state Renewable Portfolio Standards.

In the longer term when federal action may become politically feasible—which some participants predicted to be about a decade away—participants favored a hybrid approach. This approach would involve coordination between state and federal levels, and could incorporate price-based policy, investment, and regulation. Participants argued that price-based approaches, like carbon taxes and cap-and-trade programs, can enhance durability, adaptability, and flexibility. Some recommended that a price-based approach be embedded in a suite of other policies and pointed to the critical question of how to use revenue collected from a carbon price. These points related to a commonly cited idea at the workshop, which is that there is a role for specific policies to help meet the basic infrastructure needs that enable the market penetration of new technologies. A frequently mentioned example was the need for widespread electric vehicle charging infrastructure to enable the proliferation of electric vehicles. The question of who pays for this infrastructure was left open.

Overall, participants were in agreement with the conclusions of the Clean Air Act analysis, mainly that durability, adaptability, and flexibility were important elements of its success, and can be usefully applied to climate policy as well. While they did not view regulation under the auspices of the Clean Air Act or sweeping new federal legislation as feasible near-term solutions, they argued that the third option—state-based climate policy action—is not only more realistic but also holds a number of advantages that may enable the development of more durable and successful national policies in the future.