Op-Ed: Time for New Jersey to reconsider RGGI participation

Last week the Legislature held a joint hearing in search of solutions to energy affordability issues as customers feel the burden of higher electric bills. One little-mentioned driver of the high cost of producing electricity is New Jersey’s choice to join the Regional Greenhouse Gas Initiative (RGGI) while its neighbors have not. Worse yet, recent analysis concludes that New Jersey’s participation in RGGI is contributing to an increase of carbon dioxide (CO2) — a primary greenhouse gas — by 2.7 million short tons, annually.

The Legislature has been very active in trying to find solutions to contain energy costs, particularly as they impact low- and middle-income communities in New Jersey.  Fortunately, while certain electricity cost drivers are largely beyond the control of the state, the costs of the RGGI program are within the state’s direct control.  We believe it would be prudent to explore whether the RGGI program is yielding benefits that justify its costs, and whether New Jersey’s participation in the program should be reconsidered for potential savings opportunities.

RGGI, a coalition of 11 states in the mid-Atlantic and Northeast to “cap and trade” CO2 emissions, has achieved notable success leading to the closure of all of New Jersey’s coal facilities and other older, less efficient plants.  What remains is a combination of nuclear, renewables, and natural gas-fueled generation, which are among the cleanest facilities in the nation.

Now that New Jersey has achieved much of the intended environmental successes from RGGI, it is fair to ask what more is expected of RGGI and is it worth the cost?  If the intent is to force the remaining in-state efficient gas generation to retire at a time of increasing electric demand, does it make sense that replacement power would continue to flow from states like Pennsylvania, Ohio and West Virginia, where generators are not subject to RGGI costs? Because that is exactly what is happening today.

According to a report by TCR, a reputable energy and economics consulting firm, recent RGGI prices are expected to result in CO2 emissions increases of 2.7 million short tons across PJM, the regional electricity market in which New Jersey participates, as compared to a case where New Jersey and its neighboring states of Delaware and Maryland leave RGGI. According to Environmental Protection Agency estimates, that’s the equivalent emissions impact of adding approximately 532,000 passenger vehicles to the road. We believe the following factors should be considered in a review of RGGI’s costs and benefits:

• RGGI allowances costs are akin to a tax on New Jersey fossil fuel generators that generators in neighboring states do not have to pay, placing highly efficient (cleaner) New Jersey generators at an economic disadvantage to less efficient (dirtier) generators (primarily coal) in other states, like Pennsylvania, that are not members of RGGI. This tax on average equates to 25% – 50% of the cost of producing power for New Jersey gas generators. The resulting economic and emission “leakage” has shifted generation out of New Jersey and to the West. In simplest terms, leakage means that New Jersey ratepayers are subsidizing the operation of their neighbors’ coal-fired generation over the operation of cleaner, in-state gas generation.
• The 2024 RGGI auctions allowed New Jersey to collect approximately $270 million from the sale of allowances to be reinvested in state programs. Unfortunately, according to the TCR report, the continued participation of New Jersey, Delaware and Maryland in RGGI increases the cost to serve PJM customers by $1.16 billion, resulting in a net loss for the state. That cost, paid in part by New Jersey natural gas generation operators, is reflected in the cost of producing energy and increases costs for New Jersey consumers.  In effect, New Jersey is putting a tariff on itself for the perverse outcome of increasing global emissions and substantially raising the cost of its energy.

While we recognize that any challenge of RGGI will result in a flurry of studies making all sorts of claims, a simple direct observation can confirm the program is no longer functioning as intended — cleaner New Jersey gas plants are running less as a result of the RGGI tax while coal plants in Pennsylvania and beyond are running at increased capacity. It’s almost as though New Jersey energy policy reflects a belief that electricity can flow from west to east, but air pollution from coal facilities somehow doesn’t cross the Delaware River. We believe New Jersey energy policy should not create this perverse economic incentive for coal to run over gas.

There is compelling evidence to warrant reconsideration of New Jersey’s membership in RGGI as a key policy lever to both make electricity more affordable for the New Jersey ratepayer, reduce greenhouse gas emissions and support efficient New Jersey power generators over less efficient out-of-state generators. RGGI has achieved notable success in the past, but the current high cost to New Jersey consumers and the perverse environmental impacts cannot be ignored.