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8A – Daily News – Tuesday, June 29, 2010 How cap-and-trade revenues went to fix state budgets WASHINGTON (MCT) — A few weeks ago, 10 North- eastern states held an unusual sort of auction. What the states were selling was credits for carbon emissions. The buyers were electric utilities, who purchased the credits either to allow themselves to send car- bon dioxide out the smoke- stacks of their own power plants, or to re-sell those cred- its to other utilities. The auction, a quarterly feature of North America's only working cap-and-trade regime for greenhouse gases, raised $80.5 million. It was the latest installment of a windfall that the 10 states have largely committed to promoting ener- gy efficiency. Lately, however, a few of the cash-strapped states have had other designs on the money. The same day as the most recent auction, June 9, New Hampshire lawmakers voted to take all of the state's expected $3.1 million share of the proceeds and use it to help plug a $295 million budget hole. That move came after New York and New Jersey had staged even bigger raids on cap-and-trade funds. New York transferred $90 million out of a fund of auction pro- ceeds and into its general fund. The money grabs are creat- ing concern among environ- mentalists. When the states were putting together the Regional Greenhouse Gas Ini- tiative, or RGGI, back in 2005, each agreed to a memorandum of understanding that at least 25 percent of the auction pro- ceeds would go toward reduc- ing energy usage. Some states went much further than that. New Jersey's Global Warming Response Act said 80 percent of the money should go toward energy-related causes. "RGGI is a pretty simple concept," says Matt Elliott, the Global Warming and Clean Energy Advocate for Environ- ment New Jersey. "We cap pol- lution, we charge polluters to pollute, and we put the money back into programs that con- serve energy." Elliot says the RGGI raids not only violate the states' original agreement with each other, but also upend the idea that cap-and-trade was supposed to save ratepayers money on their energy bills in the long run. "It means cap- and-trade will cost money now instead of saving money," Elliot says. As Congress debates cap- and-trade legislation of its own, the RGGI raids would seem to confirm the fears of critics. "Cap and trade is the tax that dare not speak its name," a Wall Street Journal editorial said last year, arguing that utilities would pass the costs of carbon credits through to consumers. Now, with three states stashing extra auction proceeds in their general funds, there's evidence to sup- port the view that cap-and- trade regimes amount to just another tax. The Senate's cap-and-trade bill outlines how the money left over from auctioning car- bon credits is supposed to be spent. More than half of it would go to energy-related causes, while 13.5 percent would be held for reducing the federal deficit. But if states are finding loopholes to redirect RGGI money during a budget crisis, Congress might be tempted to do the same thing. Kenneth Green, a resident scholar at the American Enter- prise Institute in Washington D.C., is not surprised to see the three states raiding the money. ‘There's no such thing as a dedicated tax when the government has the money in its hands. Congress makes the law and they also make the budget, so just because they say the money has to go somewhere doesn't mean they'll put it there’ Kenneth Green, American Enterprise Institute "There's no such thing as a dedicated tax when the gov- ernment has the money in its hands," he says. "Congress makes the law and they also make the budget, so just because they say the money has to go somewhere doesn't mean they'll put it there." RGGI uses the same mar- ket-based approach that fought off the acid rain problem in the 1990s. Emitters of carbon dioxide _ which RGGI limits to power plants _ must keep their emissions under an over- all cap. Individual polluters can exceed the cap, but only by purchasing allowances, either at auction or from each other. The plan dates back to 2003, when then-New York Gov. George Pataki called on fellow Northeastern governors to develop a strategy respond- ing to global warming. In 2005, an RGGI working group proposed to keep emissions flat from 2009 to 2015 and then begin cutting the cap by 2.5 percent each following year. By 2018, emissions are expected to be reduced by 10 percent from the program's start date. RGGI held its first auction of carbon allowances in Sep- tember 2008. Ten states now participate: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hamp- shire, New Jersey, New York, Rhode Island and Vermont. In total, the auctions have raised $663 million for these states. Although RGGI is a collab- effort, Dave orative Farnsworth, a senior associate with the Vermont-based Regu- latory Assistance Project, says it's important to think of RGGI as 10 different programs in 10 different states. That's one rea- son why the states have reached different conclusions about whether to dip into their RGGI funds. In Rhode Island, for exam- ple, Gov. Donald Carcieri determined that state law would prevent using the auc- tion funds to fill a budget hole. In Maryland last year, Gov. Martin O'Malley suggested pouring most of the state's $90 million RGGI trust fund into the budget. That didn't happen, but this year, lawmakers did decide to divert RGGI money from energy-efficiency pro- grams toward helping low- income residents with their power bills. In New York last December, Gov. David Paterson proposed and the Legislature approved putting half of the state's avail- able RGGI money toward the general fund, even though state regulations called for it to be spent on energy efficiency. In New York, budget agree- ments between the governor and the Legislature trump any other spending plans that might have been in place, so in this case, balancing the budget became the bigger priority. New Jersey's global warm- ing law directs where the RGGI money is supposed to go. The catch there is that the funds are not constitutionally dedicated, which allows the governor and lawmakers to use them for budget purposes. Making the money constitu- tionally dedicated, which would be the next step in pro- tecting RGGI money, requires a two-thirds vote by the Legis- lature and the approval of state voters. In New Hampshire, the RGGI money was legally ded- icated to energy efficiency. That's why the state Legisla- ture had to vote for it to be spent toward the budget. Joanne Morin, director of the New Hampshire Governor's Office of Energy and Plan- ning, says the action was taken as a last resort and hopefully won't have to happen again. Farnsworth says he suspects that the states will go back to spending the money on energy efficiency programs once their deficit problems aren't as severe as they are now. He argues that RGGI has been a success _ carbon dioxide emis- sions from power plants in the 10 states are below the cap they set. "RGGI is the best model of cap and trade that you'll see in the world," Farnsworth says. "If the goal is reductions, RGGI has it beat." Cautious consumers may fuel debate over deficits WASHINGTON (AP) — A tepid gain in consumer spending last month could fuel a debate over whether the United States and other 8049 Hwy 99E, Los Molinos, CA governments should further stimulate their economies to sustain the recovery. 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Cutting off unemployment benefits ‘‘is a dangerous way to cut deficits when the economy is still fragile.’’ Economic growth, which leads to higher tax receipts and less spending on social programs, is the best way to reduce the deficit, Pandl said. Other economists note that wages and salaries rose 0.5 percent in May, a sec- ond consecutive month of strong gains. That is a sign that the recovery can sur- vive without government propping it up. If the trend in income growth continues, ‘‘con- sumers’ spending power will be bolstered, which will in turn drive economic growth, necessitating less government support,’’ said Dan Greenhaus, chief eco- nomic strategist at Miller Tabak. One thing is certain: Americans are being careful with their money. Con- sumer spending rose 0.2 percent last month after no change in April, the Com- merce Department said Monday. Consumer spending accounts for about 70 per- cent of economic activity. But the consumer hasn’t been driving this recovery. 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