June 5, 2008

Sky high?
How the price of cleaner air could affect NH business — and you
By Heidi Masek hmasek@hippopress.com

There’s this thing called RGGI, and yes, it’s pronounced “Reggie,” that when mentioned can spark some arguments. And it looks like this attempt at a carbon dioxide limiting program is here to stay in New Hampshire. At least until the federal government jumps on the bandwagon.

The rundown on RGGI
The Regional Greenhouse Gas Initiative is a 10-state agreement to limit and eventually reduce carbon dioxide emissions from fossil-fuel power plants in the Northeast while keeping energy affordable. The mechanism involved is “cap and trade.” That’s code for an agreed-upon limit on how many tons of CO2 can be emitted.

Allowances for each ton of emissions can be auctioned. Money made by selling those allowances can then be used for energy-efficiency programs to help electricity ratepayers reduce their consumption. The fund will be “fuel-blind,” unlike current efficiency funding available from utility companies. So those who take advantage can also use RGGI money to try to conserve energy or heat from natural gas, oil, propane, etc.

Of course, there’s much more to it than that. New Hampshire’s legislature adopted a state version of RGGI on May 15, and it is awaiting the governor’s signature. However, various stakeholder meetings and legislative hearings have been held about RGGI since 2004. One of the louder voices in the discussion is the business and industry lobby, which argues that projected electricity rate increases in the first few years of RGGI will be too much for companies to bear.

Still others commend RGGI as a good first step but point out there are still more emissions sources and other greenhouse gases to tackle.

In the Granite State
The thing about RGGI is that if New Hampshire didn’t join, ratepayers would still be affected.

“We’re going to be paying into this program whether we get the benefits or not,” said Laura Richardson, a member of the board of directors of the New Hampshire Sustainable Energy Association.

That’s according to a January study from UNH’s Ross Gittell and Matt Magnusson at the Whittemore School of Business and Economics. They write that about half of the electricity used in the state comes from the wholesale competitive market and “all of the utilities in the state purchase competitively generated power from the New England marketplace.” The study is called “Economic Impact in New Hampshire of the Regional Greenhouse Gas Initiative.”

New Hampshire generates about twice as much electricity as it consumes (that includes other sources such as hydroelectric plants and nuclear) and exports mostly to Massachusetts and Connecticut. But utility-owned generation (PSNH retained the right to operate some generation after deregulation) only supplies about half of the electricity sold at retail in the state, explained Public Utilities Commissioner Clifton Below.

Electricity consumption in state grew 31 percent between 1990 and 2005, but more than three quarters of that growth happened after 2000, according to the Nature Conservancy. Electricity use is growing faster in New Hampshire than it is in other RGGI states. The state doubled its CO2 emissions between 1995 and 2005.

“Doing nothing is the worst-case scenario,” said Jim O’Brien, executive director for the Granite State Conservation Voters Alliance.

Immediate opportunities
New Hampshire’s four electric utilities have a 2008 energy-efficiency program budget of about $19 million. That’s money that customers pay, called the systems benefit charge. It also goes to some low-income programs. The state’s two gas utilities have a total budget of about $2.5 million.

Northern and National Grid (previously Keyspan) offer rebates to customers who install “high-efficiency gas heating and water heating equipment.” There are weatherization programs, and National Grid will help pay for some new or underutilized equipment technology.

PSNH, Unitil, New Hampshire Electric Co-op and National Grid electric offer several rebate options for businesses. They pay up to 50 percent of the cost of labor and materials for recommended energy-efficiency improvements for small businesses, and provide a free energy analysis. They also have programs for large commercial or industrial retrofits, and incentives for high-efficiency HVAC equipment, among other things.

From 2002 through 2006, energy-efficiency programs saved enough energy to power Concord for 11.3 years, according to the utilities’ last report to the PUC. The return on investment for customers is $7 for every program dollar invested. Emissions reduced are equal to the annual emissions of 579,000 cars, according to the report.

Coming soon
Through RGGI, between $12 million and $36 million could become available for similar programs plus independent projects next year. That’s the estimate based on how the bill is currently written, with income expected from 5,950,000 RGGI allowances available for auction at a price between $2 and $6 each. “In 2010, the amount could rise to about $48 million before the ratepayer rebate kicks in,” Commissioner Below said.

Below said there is a model for rules covering much of the program, including allowances and offset allowances (see them at www.rggi.org/modelrule.htm). But the model doesn’t cover administering the greenhouse gas emissions reduction fund called for in New Hampshire’s HB 1434, which hasn’t been signed into law yet.

“Significant revenue from the sale of allowances probably won’t be available until March or April of next year,” Below said. The PUC is supposed to audit programs funded through this, and a portion of the fund goes to the cost of administering it. At least 10 percent goes to help low-income customers. There’s also a provision that beyond the price thresholds, the PUC will refund unneeded money.

The business standpoint
“It’s a given” that people will see increased electricity costs in the early years of RGGI, said Michael Licata, director of government affairs for the Business and Industry Association.

The “rationale” for joining RGGI, aside from the obvious need to address carbon dioxide, is that in the long run, bills will go down because people will be using less electricity, he said. But the BIA and other groups are concerned because they don’t know how long it will take to see reduction in consumption, or how much the allowances will be sold for at auction if a secondary market emerges.

Michael Skelton, vice president of economic development & advocacy at the Greater Manchester Chamber of Commerce, said many members have adopted green practices, like using recycled paper or efficient light bulbs, and many will be interested in RGGI’s efficiencies. “But the program is relatively undefined right now so it’s tough to predict how many or how quickly businesses will take advantage,” Skelton wrote in an e-mail. The Chamber agrees with the goals of the program, but is worried that the “open auction process will encourage speculation that may drive up costs for energy producers.”

While generators have to buy allowances, “It’s an auction and it’s open to anyone,” said Martin Murray, senior corporate news representative for PSNH. PSNH is also concerned about whether there will be enough allowances available.

The BIA asked for “threshold” numbers on allowances to minimize the impact on ratepayers. That’s a compromise that looks like it won’t provide the best bang for the buck according to the Gittell/Magnusson study.

“Energy costs are going to keep rising ... we’re going to have more issues with supply,” Richardson said.

Money now vs. potential savings later
“The cheapest new megawatt of electricity … is the megawatt we don’t generate in the first place,” said Will Abbott, vice president at the Society for the Protection of New Hampshire Forests. He doubts people will use rebates toward eliminating waste and reducing consumption, but he views compromise as part of legislating. “I’m a firm believer you don’t want the perfect to get in the way of the good. All in all, I think it’s definitely a step forward,” Abbott said.

The House wanted to set the threshold at $12 per allowance before money is rebated to customers, and BIA wanted rebates after $2. The Senate compromised at $6 per allowance for 2009.

The UNH study found that New Hampshire stands to gain the most benefit from RGGI if all allowance revenue is used for “investment in energy efficiency or to reduce business taxes.”

“We don’t dispute the modeling; however, there is a tipping point,” Licata said. Complying with renewable portfolio standards (RPS) is also expected to raise rates; RPS was adopted in New Hampshire in 2007, and requires utilities to obtain a certain portion of their power from renewable sources.

New Hampshire’s rate is among the 10 highest average per-kilowatt-hour rates in the U.S. Rates are about 12 or 14 cents per kilowatt-hour here, while the rate is more like 6 cents per kwh in Tennessee or Alabama. “If I’m a business owner, why would I choose to stay in New Hampshire?” Licata said.

The UNH impact study said the state won’t see the benefit of RGGI until the sixth year, Licata said.

“We and others did have some concern about how much could cost-effectively and efficiently be invested in EE (energy efficiency) in early years and how long it would take to ramp up to such high spending levels,” Below said.

“We are in the middle of a major study of energy efficiency and demand reduction potential in New Hampshire … that will help inform us as to … how much EE is feasible, in what areas, and with what program design. That report is due at the end of August,” Below said. 

How high is too high?
In the short term, the state runs the risk of losing jobs and manufacturing, Licata said — especially with oil trading at $135 per barrel, which already affects consumer costs. Electricity and health care are two of the biggest costs that concern BIA members now, Licata said. And across the board, everything is going up — commodities, steel, plastics. Businesses “look for every edge they can get ... every penny, every dime ... if they don’t, they won’t be in business,” Licata said. It’s not that the BIA members don’t support addressing climate change. It’s that the program “takes money out of ratepayers’ pockets,” Licata said.

Customers could see rates increase between $0.000651 and $0.001952 per kwh in 2009, according to an estimate that assumes other New England states participate but does not consider savings from investment and peak demand reduction, Below said. In 2010, the low estimate is about the same as in 2009, and the high range is about $0.002569 per kWh. So bills are estimated to increase between 0.5 and 1.5 percent.

“Obviously there’s an uproar from business,” Richardson said. They see the first couple years when energy costs rise. “The deal is that in order to fix the problem you have to invest,” Richardson said. “We need to get beyond the immediate gratification concept.... We need to start really thinking about long-term solutions,” she said.

But she noted that the BIA has a lot of important companies in its network. “They are the New Hampshire economy. We can’t belittle their perspective on this,” she said. “They have a valid concern that businesses are going to leave the state ... but the point is energy costs are going to rise anyway,” Richardson said.

The UNH study was clear that actual costs of using energy will drop over time if people take advantage of energy efficiency programs funded by RGGI. “It could grow our economy instead of shrinking it,” she said.

But Murray pointed to concern about whether the government has the “wherewithal” to effectively spend the RGGI revenue as intended. There’s a good amount of simple fixes or “low-hanging fruit” for efficiency, but “after that it gets tougher,” Murray said.

At the same time, PSNH’s fossil fuel power is “absolutely” needed to meet customer needs, Murray said. And the need for power isn’t static. It will grow. So it’s important to develop more generation from clean, renewable sources, Murray said.

Richardson pointed out that New Hampshire’s program is only 4 percent of the whole RGGI program.

Michael Bruss, of Bruss Construction in Bradford, is scheduled to speak at an upcoming BIA conference on sustainability. He is a member of the DES Environmental Leadership Initiative steering committee.

Bruss uses green building technology. His company has started to reduce fuel consumption in its fleet and its campus and has begun to focus on jobsite recycling. Construction debris is one of the largest landfill contributors, said Eric Ensign, marketing director. People constantly talk about pollution from cars, “but it’s actually buildings that are the largest consumers of natural resources and largest polluters,” Ensign said.

“We fully support energy efficiency,” Licata said. One of the questions he wants to ask at the June 18 conference will be how RGGI funding will be available, he said.

“It’s difficult for us to sort of map things out because there are so many unknowns,” Licata said. Another issue he has is that the UNH modeling is based specifically on electrical energy efficiency, although New Hampshire’s RGGI fund is going to be fuel-neutral.

Potential business
Jim Rubens, a former state senator, venture investor and consultant for the Union of Concerned Scientists, said America is the “OPEC of negawatts.” As in negative watts.

“Our largest and cheapest energy resource is eliminating waste,” Rubens said.

Average homes in New Hampshire were built in the 1970s, and strides have been made since then in building science. Better doors, windows and thermostats are available. There are pellet stoves for heating, which use wood pellets made in New Hampshire. But there’s current “market failure,” and it has to do with who owns what, Rubens said. “The landlord often doesn’t pay for the heat, the tenant does,” Rubens said. A landlord doesn’t reap the benefit of replacing an old air conditioner if the tenant pays the electric bill. Conversely, a tenant may not plan to stay long enough to see the return on investment for adding insulation.

RGGI funding could help get schools or municipalities past the cost of fixing inefficient public buildings, so they can start saving on fuel bills, Rubens said. Schools all over the state have inefficient windows, insulation and heating systems. But voters just see the initial cost of retrofit projects, rather than a project’s ability to pay for itself with fuel savings. RGGI could provide funding for the Department of Education to make loans for projects in schools, and the same thing could be done for municipal buildings — and the effect could eventually lower property taxes, Rubens said. (Revolving loans in this case typically involve the facility or homeowner using projected fuel cost savings to pay back the loan for the project.)

This year, the state spent $5.5 billion on coal, natural gas and petroleum products — 9.9 percent of the gross economy, Rubens said. That 9.9 percent and related spinoff business is going to places like Texas, Saudi Arabia, Canada and Ohio. Instead, New Hampshire could use some of that $5.5 billion for local sources like wood chips and wood pellets to make electricity or heat, or hiring local people to insulate roofs and commercial buildings.

“This is so bullish for the New Hampshire economy,” Rubens said.

Highest bid
A secondary market could develop, if other interests buy and sell the allowances for other purposes. Something like a hedge fund company could enter contracts with a utility, for example, and offer to sell it allowances for five years at set prices, O’Brien said. It’s a new concept for the carbon market, but a normal process for commodity trading, O’Brien said. RGGI is the first program in the U.S. in terms of a carbon cap and trade and is being seen as a model nationally. There are, however, some programs for other pollutants, such as sulfur dioxide and nitrogen oxide (www.epa.gov/airmarkets)

The RGGI allowance auction is designed to be multi-state. There are some limits, according to the RGGI auction plan — those bidding need “provision of financial security.” Bidders can be limited in later auctions, and can’t buy more than 25 percent of the total allowances at an auction (www.rggi.org/docs/20080317auction_design.pdf ).

Making the rules
Previous worries about the RGGI fund included concern that the state legislature might raid it for unrelated budgets — like education — leaving no mechanism to reduce electricity demand. But the law is written to prevent that, Below said. And the PUC “has audit capability as well as … verification efforts and protocols,” he said.

“New Hampshire’s legislation in this regard is fairly unique, so anything other states might have done in this regard probably won’t have much applicability to New Hampshire. We do regularly learn about what other states are doing in EE programs and endeavor to keep up with the state of [the] art,” Below wrote. 

Other legislation, HB 1561, sets up an Energy Efficiency and Sustainable Energy Board for New Hampshire. “The PUC is also in the process of setting up a Sustainable Energy Division to focus staff resources and work in this area,” Below said.

In your home
Members of the Plymouth Area Renewable Energy Initiative (PAREI) have been taking matters into their own hands since 2004. They hold what they call “energy raisers” — it’s like a barn-raising party, for helping to install solar water heating and solar electric systems. See www.plymouthenergy.org. PAREI won an award in 2005 from the U.S. Department of Energy’s Million Solar Roofs program.

Rather than wait for legislation to create incentives, the 230 families that belong to PAREI press on. In the last three years, PAREI installed enough projects — 52 systems — to offset between 10,000 and 12,000 gallons of oil per year or its equivalent (some is electricity).

Solar thermal installation can cost between $3,500 and $5,000 through PAREI, but existing incentives reduce that to a final cost of $1,800 to $2,500. (Professional installation would cost about double, Adams said.) NH Co-op customers can get a $1,500 rebate on solar thermal and a $3-per-watt rebate on photovoltaics. Photovoltaic (PV) costs about $8.50 per watt installed, so one KW costs about $8,500 to install. But the NH Co-op rebate, plus an IRS credit of up to 30 percent on the remainder (up to $2,000), can bring that down to about $3,800, Adams said. Those federal credits end this year. Adams said he hopes Congress “sees the wisdom of keeping that going.”

PAREI starts with conservation methods for homes before installing solar components. Adams said they tell members that every dollar spent on conversation can save up to $4 off the price of a solar system. Because if you don’t need the energy, you won’t need to build a system to make it.

“You’ve gotta have your efficiency vegetables before you have your solar cookies,” according to Roger Ebbage, director of the Northwest Energy Education Institute at Lane Community College in Eugene, Oregon. It’s a phrase his colleague Wes Golomb, professor for the new Energy Services and Technology program at Lakes Region Community College, wants to print on T-shirts. That program trains students to become energy auditors.

“As an organization, we’re not holding our breath,” Adams said. They’ve seen energy programs come and go since the 1970s. The state RPS is great, Adams said. But it will be a while before it is funded.

Patrick McKenna, chair of a new energy committee in Guilford, said it looks like oil will cost more than $4 or $5 per gallon, and there’s a real concern about how people will heat their homes this winter. Pre-buy contracts that lock in prices for customers are disappearing as small, family-run heating oil companies find it harder to obtain their product at a stable price, he said. People might end up with no money to invest in lessening dependence on fossil fuels, he said.

Clean power, and your own power
RGGI “partners nicely” with RPS, Richardson said. RGGI should reduce energy needs, while RPS should ensure more of the needed energy is cleaner, explained economist Dr. Lisa Shapiro, at a Manchester Chamber event in May.

Licata referenced Senate Bill 451, which would allow utilities to invest in distributed energy projects. If manufacturing, hospitals or the like could have some assistance to put up a few wind turbines or solar panels, it would mean clean new power without having to invest in new transmission lines. (An issue with RPS is that the places where it makes the most sense to put renewable generation are in the North Country, where there is limited transmission capacity. Installing new transmission lines can be a long and expensive process.)

Unitil is experimenting now with small wind towers on the Seacoast for distributed generation, Murray said.

More to deal with
“RGGI is not an answer to global warming ... it’s really a modest first step for our state and region,” O’Brien said. It creates a market-based solution, focusing on ways to create jobs and economic development by lowering the amount of carbon emitted, he said. But regulating utilities is a lot easier than trying to get individual consumers of gasoline to reduce their use, although the current price spike seems to be doing some of that, O’Brien said.

“A lot of people who live here, myself included, depend on their vehicle to do their job. There just aren’t any alternatives,” Abbott said.

It was originally assumed that a “RGGI II” would follow RGGI and would involve transportation emissions, according to Roger Stephenson, executive vice president for programs at Clean Air-Cool Planet, an organization based in Portsmouth that works with “companies, campuses, communities and science centers throughout the Northeast to help reduce their carbon emissions.”

In 2001, then-governor Jeanne Shaheen, regional governors and Canadian premiers agreed on a regional climate change initiative that involved all of civil society, Stephenson pointed out. They set a regional midterm goal of a 10-percent reduction in greenhouse gas emissions from 1990 levels by 2020. But attention to regional climate change action was “deep-sixed under Governor Benson,” Stephenson said. Focus turned to “stationary sources” of greenhouse gas after RGGI started; meanwhile, “the emissions from transportation are only growing,” Stephenson said. Now, Gov. Lynch has started a Climate Change Task Force and the group’s report is due in September.

“We’re talking about transformational changes. We are a carbon economy,” Stephenson said. Over the last 150 years, the economy has been built around fossil fuels. “We are asking ourselves, and scientists are warning us ... to flip that over in next 15 years,” Stephenson said.

Federal law?
Stakeholders across the board have said they would prefer a federal version of RGGI. Economically, that would even the playing field.

Work is starting for RGGI-like systems in the South, the Pacific Northwest and California, Stephenson said.

“We don’t know if there’s going to be federal preemption of state law on carbon emissions. That’s going to be a big issue,” Stephenson said.

Abbott expects a federal program to manage carbon emissions to happen within five years.

America’s Climate Security Act, from Senators John Warner (R, Virginia) and Joseph Lieberman (I, Conn.), provides opportunities for forestry-related activities to receive a direct economic benefit. That could mean good news for New Hampshire’s forestry industry. The federal legislation to reduce greenhouse gas is expected to be debated in the Senate in June. Rubens called it “RGGI on steroids.” If it is adopted, “RGGI will have done its job” in helping promote nationwide greenhouse gas emissions limits. The Climate Security Act would make money available for research on cellulosic ethanol; that could mean New Hampshire could turn wood chips into transportation fuels.

Congress passed and the president signed but did not fund a government research and development program in the America COMPETES Act, the Advanced Research Projects Agency-Energy (ARPA-E).

Cam Wake, a UNH researcher, has produced studies showing that loss of ice cover in the Arctic is happening faster and earlier than previous scientific models predicted. Closer to home, the state flower, the lilac, blooms a week earlier than it did 40 years ago, Stephenson said.

“We need federal climate action,” Stephenson said.

The business of forests
DES’s Tom Burack is “fond of saying there’s no silver bullet, only silver buckshot,” to reduce carbon, Abbott said. Abbott serves on the governor’s Climate Change Task Force, whose members have learned that forests take up 25 percent of man-made carbon dioxide. New Hampshire is 84 percent forested, and the dry mass of each tree is 50 percent carbon that has been removed from the atmosphere via photosynthesis. The carbon is sequestered as long as the tree is standing, Abbott said. “If we are smart about this we will figure out a way that we don’t lose that capacity to take up that 25 percent,” Abbott said.

Currently, one offset allowance qualified for RGGI is aforestation — planting trees on land that hadn’t been forested for 10 years or more. It’s actually hard to find such land in New Hampshire. A possible future offset idea (not currently allowed by state law) is “avoided deforestation,” but that’s harder to measure. For example, 1,000 acres of woods in Coos County are probably less threatened to be converted to other uses than the same amount of woods in Hillsborough County, but either way it’s hard to guess the future demand for that land. A voluntary climate exchange in Chicago is starting to market forest projects.

On the flip side, global warming can affect New Hampshire’s forests and related economy. The sugar maple is a “charismatic species,” for example, said Jack Savage, vice president of communications and outreach for the Forest Society. It’s valuable timber, and it makes the maple syrup industry possible. Maple sugaring isn’t a huge part of the economy, but it does have a ripple effect because it’s a draw for tourism following ski season. But the sugar maple could recede into Canada over time. “I don’t know that it would disappear but [it] certainly would become stressed and already [is] stressed in certain parts of the state,” Savage said.

Conventional wisdom suggested that tropical forests offer the most significant carbon intake. But new research shows they also emit more through decay, so temperate forest regions can do a better job. However, Savage said he’s not sure forests can take up enough carbon to offset the carbon dioxide released by burning of fossil fuels today, but protecting forests can help during the transition away from fossil fuel.

Trees also emit CO2 while they (or pieces of them, like leaves) decay. That represents another possible economic benefit to New Hampshire: wood-fueled plants like PSNH’s Schiller biomass plant in Portsmouth are seen as carbon-neutral because they release no more CO2 into the air than the wood would if it decayed naturally.

But again, not all the energy created from fossil fuel now can easily be replaced by renewable sources. Which is why reducing use is important, Savage said.

Differing opinions
“We waste a lot of energy in this country,” Richardson said. Unfortunately, bad energy is cheap right now. If there were an open market, good energy would be cheaper than bad energy, Richardson said, but straightening the mess out needs to be “palatable and gradual,” and “RGGI makes a lot of sense from that standpoint.”

“My thought is the whole process of incentives is actually killing the industry … the promise of them and the continued lack of passage. It creates a wait-and-see component at the consumer level,” said Patrick McKenna, chair of a new energy committee in Guilford.

McKenna believes better energy policy would be more helpful than incentives. Fossil fuels are essentially subsidized right now, he said, and if they weren’t, people would adjust their behavior. “If you consider military expenditures in regions of the world that help secure sources of oil,” or health care costs related to burning of fossil fuels, then there are more hidden subsidies, he said. “Our Medicare and Medicaid taxes are elevated as a result of that pollution. We all pay for that but we don’t see it as a cost of the use of fuel, we see it as a cost of income taxation. And it’s related. Because what it does is artificially lower the consumer price in this country,” he said. McKenna credited the book Plan B 2.0: Rescuing a Planet Under Stress and a Civilization in Trouble, by Earth Policy Institute founder Lester Brown, for his take on the matter.