Following the Money to Nowhere

Pollution trading is more about making money than it is about reducing pollution. While market-based environmental policies like cap-and-trade have proven ineffective at lowering climate pollution, they seem to be really good at generating revenue. But despite repeated claims from cap-and-trade proponents that these funds are being invested in renewable, efficient and affordable energy programs, the truth is not so straightforward.

A new report from Environmental Advocates of New York found that the spending of proceeds generated in New York by the nine-state Regional Greenhouse Gas Initiative (RGGI) cap-and-trade program has failed to follow the original intent of the program. Instead, the money is being re-directed to a number of Governor Andrew Cuomo's "pet projects."

Cuomo has regularly raided RGGI revenues to fill state coffers and subsidize initiatives outside of the RGGI operating plan. A significant portion of these funds have gone to support pre-RGGI energy tax credits ($92 million), replace lost tax revenue from shuttered or mothballed fossil fuel power plants ($45 million), and shore up the Long Island Power Authority's slashed clean energy program ($208 million).

Together, these three misallocations constituted one-third of all RGGI revenue in New York since the program went into effect.

Cuomo's raids are a regressive, inequitable distribution of RGGI proceeds. Lower-income households are less likely to have access to the RGGI-subsidized tax credits and they're predominantly outside the area of the more heavily-funded RGGI programs, like the one on Long Island. Additionally, Cuomo made many of these funding decisions without stakeholder input.

New York is not alone in pilfering from the pollution payment scheme to balance state budgets and fund other non-RGGI initiatives in lieu of promoting clean and affordable energy. New Jersey has been perhaps the worst offender. From 2009 to 2011, the state redirected $65 million, about 57 percent of the state's allocated RGGI funds, away from renewables to allay the state budget deficit.

RGGI's supporters tout the program's ability to raise revenue for renewable energy and energy efficiency initiatives, as well as reduce energy bills for low-income households. In reality, not only is this revenue being diverted to state general funds, but it is also being used to supplant, rather than strengthen, environmental initiatives. Furthermore, since RGGI's inception, residential households in participating states have seen their energy costs increase by over $1 billion annually, while energy costs for industrial customers have decreased.

It appears that some RGGI states have become addicted to funding from the sale of pollution credits. Ultimately, this could mean that governments would have a financial disincentive to reduce or eliminate carbon emissions as they become dependent on pollution-trading revenue to prop up state budgets.

The climate crisis is well under way. States must reject ineffective market-based environmental programs, restore and strengthen pollution controls that have successfully reduced emissions, and invest more in renewable and efficient energy programs. The best way to reduce climate emissions is to prohibit new emissions, plain and simple.