RGGI program brings deficit spending to New Hampshire
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If the people running New Hampshire’s RGGI program were running a business in the private sector, they’d either be fired, under criminal investigation, or both. Of course, they’re not. And in the world of government, they haven’t done anything wrong. They’ve simply spent tomorrow’s money today, creating a $600,000 deficit that needs to be paid off using next year’s RGGI revenues.
In 2008, New Hampshire Legislature signed us up for the Regional Greenhouse Gas Initiative, a compact of ten Northeastern states to cap the amount of carbon dioxide coming out of fossil fuel power plants, and auction off the right to emit the gas as a way to raise revenue.
Five power plants in New Hampshire are covered under the regime, and will have to produce enough carbon allowances in March to match their emissions from the past three years. Earlier this month, RGGI Inc, the non-profit set up in New York City to administer the carbon auctions, concluded the final sale of the first three year cycle, giving us a chance to see how the experimental program is working. Not that well.
As we’ve reported at New Hampshire Watchdog, prices in the carbon market crashed to the preset floor more than two years ago, and haven’t rebounded. The secondary market is practically non-existent, taking the trade out of cap-and-trade. And for the last year, demand for the carbon allowances has dropped so much that most of the available allowances were left unsold on the auction block.
In New Hampshire, the Public Utilities Commission was tasked with handing out the RGGI revenues. The PUC handed out just over $31 million in grants through the Regional Greenhouse Gas Emissions Reduction Fund, which is funded solely through RGGI auction revenues. The Legislature set aside $1.2 million for the state’s weatherization program in 2008, and Governor John Lynch asked to transfer another $3.1 million to fill the budget deficit in 2010. In total, New Hampshire has spent $35.3 million in RGGI revenues. Unfortunately, the state has only received $34.7 million so far.
With RGGI prices high in 2008, New Hampshire took in $18 million from the program’s first five auctions. And the PUC spent it, handing out four sets of awards for municipal energy efficiency programs, private sector energy upgrades, and some consulting contracts. Prices dropped in 2009, bringing in just over $10 million for New Hampshire. But the PUC handed out $13.4 million in grants, along with the Legislature’s $3.1 million transfer.
According to Jack Ruderman, Director of the PUC’s Sustainable Energy Division, the program grants aren’t paid out in a lump sum, and this year’s $6 million in RGGI revenues have been almost enough to meet the state’s commitments made in 2009 and 2010.
Wisely, the PUC hasn’t handed out any RGGI money this year, since it’s been scrambling to use this year’s revenues to meet last year’s commitments. We’re still more than $600,000 short. Luckily, state government isn’t like the real world. We can use revenues from the 2012 RGGI auction to finish paying off the grants handed out in 2010.
We’ve always prided ourselves that New Hampshire government lives within its means, even if some of us want to augment those means with higher taxes. We don’t engage in deficit spending that those rascals in Washington. Except that we do, and we’re getting better at it.
We’ve spent RGGI money that we’ve haven’t collected yet. It certainly isn’t the only state program generating red ink. According to a briefing my boss Charlie Arlinghaus gave to the Legislature this week, we’ve increased state debt by 43% over the last four years. The General Obligation Debt that we’re passing on to future taxpayer is closing in on a billion dollars. We should also remember the $4 billion liability hanging over the New Hampshire Retirement System.
RGGI is just a tiny corner of New Hampshire government, but we somehow managed to spend more in the program’s first two years than it could raise in three. As New Hampshire moves into RGGI’s second three-year window, we should take a more cautious look at what to expect from the program.
Grant Bosse is Lead Investigator for the Josiah Bartlett Center for Public Policy, a free-market think tank based in Concord.
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