June 30, 2008
USING REVENUE FROM CARBON DIOXIDE AUCTION
By: Kevin E. McCarthy, Principal Analyst
You asked whether the Department of Environmental Protection (DEP) can allocate part of the money derived from the Regional Greenhouse Gas Initiative (RGGI) carbon dioxide (CO2) emissions auction to reduce electric rates. You also requested options for the legislature in this area. The Office of Legislative Research is not authorized to provide legal opinions, and this memo should not be considered one.
CARBON DIOXIDE AUCTION
RGGI is an agreement among Connecticut and nine other northeastern and mid-Atlantic states to reduce emissions of CO2 and other greenhouse gases. Connecticut is participating in this initiative pursuant to legislation adopted in 2004 and 2007. In addition, PA 08-98 mandates reductions in state greenhouse gas emissions and makes changes designed to help the state achieve the reductions.
RGGI will initially concentrate on emissions from power plants. The RGGI states have agreed to reduce the amount of CO2 their power plants emit through a “cap-and-trade” program. This program limits the amount of CO2 power plants can collectively emit, and requires power plant owners and operators to hold one allowance for each ton of CO2 they emit. The total number of allowances issued cannot exceed the regional cap, which will decrease over time. Starting January 1, 2009, regional CO2 levels will be capped at 188 million tons, slightly higher than current levels, and gradually reduce to 10% below the starting point by 2019.
CGS § 22a-200c requires DEP to adopt regulations to implement RGGI, which are currently pending before the legislature's Regulation Review Committee. It requires DEP, in consultation with the Department of Public Utility Control, to auction all of the emissions allowances and to invest the proceeds on behalf of electric ratepayers in energy conservation, load management, and class I renewable resources programs. (Load management programs encourage customers to shift when they consume electricity to off-peak periods; class I renewable resources include such things as solar and wind power.) The law requires DEP, in making the investments, to consider strategies that maximize cost-effective reductions in greenhouse gas emissions. OLR Report 2008-R-0338, attached, describes the proposed regulations, including the auction process and how the resulting revenues would be allocated. Under the proposed regulations, approximately 70% of the proceeds would be invested in energy conservation and load management programs and 23% in renewable energy, with DEP retaining the remainder for its administrative expenses.
USING AUCTION REVENUES FOR RATE REDUCTIONS
In the medium to long run investments in energy conservation and load management are likely to reduce expenditures on electricity, other factors being held constant. The Energy Conservation Management Board in its most recent report to the legislature, estimated that $98.2 million of ratepayer funds invested in efficiency programs in 2007 will yield $776.8 million in consumer savings over the life of the measures at current rates. Investments in renewable energy may also save ratepayers money in the longer run.
However, it does not appear that the law permits DEP to allocate revenues from the auction directly for electric rate reductions. Under principles of statutory construction, if a statute specifies the options open to an agency, the agency must implement one or more of these options. It cannot implement alternative options unless this is authorized by the statute. CGS § 22a-200c specifically requires DEP to invest the auction proceeds in energy conservation, load management, and renewable energy programs and does not appear to authorize DEP, explicitly or implicitly, to use the money for other purposes. If the legislature had desired to give DEP the authority to use the money to reduce rates, it could have written CGS § 22a-200c more broadly. For example, it could have left the use of the auction proceeds to DEP's discretion or specifically authorized rate reductions as an allowable use of the money.
Moreover, it appears that using the money raised by the auction for rate reductions would be contrary to the primary goal of RGGI and the related state laws, which is to reduce emissions of CO2 and other greenhouse gases. On the margin, reducing rates will tend to increase consumption of electricity. In turn, this will increase production of greenhouse gases.
The Regulations Review Committee could request that DEP withdraw its proposed regulations and revise them to place a greater emphasis on conservation and load management in order to maximize the reduction in electric expenditures. However, it does not appear that the committee could require DEP to take this action.
Alternatively, the legislature could amend CGS § 22a-200c to allow or require that part of the money raised by the auction be used to reduce rates. It could also require that if the amount of money raised by the auction exceeds a specified amount, the excess be used for this purpose. Finally, the legislature could require the state to renegotiate the terms of its participation in the RGGI agreement. For example, the legislature could require that the cap and trade system have a provision that capped the maximum price of the allowances.