NY Lawsuit Threatens Regional Cap and Trade System: A Sign of What’s to Come?

Posted by Rachel Deahl on December 10, 2009 at 3:23 pm

(image: cloudave.com)

Does a state have the right to institute laws that regulate emissions? A power company in New York is hoping to make the case that it does not. WNYC radio reported on Monday that Indeck Energy, based upstate, has filed a lawsuit challenging the cap and trade law that governs New York and other Northeastern states.

Indeck, which is facing financial trouble at one of its gas-fired power plants in Corinth, NY, is challenging the cap and trade system that former New York Governor George Pataki helped create. That system, which was instituted to regulate CO2 emissions throughout the Northeast, was formally called The Regional Greenhouse Gas Initiative (RGGI). The New York bill mandated across-the-board cuts on emissions from power plants in pursuit of the goal of a ten percent reduction in CO2 emissions from the power sector by 2018.

RGGI, mapped out by politicians in 2003, includes states throughout the Northeast and Mid-Atlantic that joined at different points in time. Current members are New York, Maine, New Hampshire, Vermont, Connecticut, New Jersey, Delaware, Massachusetts, Maryland, and Rhode Island. The agreement was the first mandatory, government-instituted, market-based effort in the country aimed at lowering greenhouse gas emissions.

The way the RGGI cap and trade system works, as WNYC laid out, is that each state in the group requires local power plants to adhere to the emissions cut. The trade part of the bill allowed the plants to spend money or, as WNYC put it, “buy an allowance,” to emit or carbon dioxide and other greenhouse gases. The plants could buy this allowance from other plants that had cut their CO2 emissions, thereby creating a communal ecosystem of sorts intended to keep emissions down. Of the cap and trade systems, the Kyoto Protocol is probably the best known.

Indeck is now claiming that the bill is unconstitutional. Unlike other plants in the state, Indeck’s Corinth plant has a longstanding contract to sell electricity to utility Con Ed at a fixed rate through 2015 and this, the company says, is creating a grim financial reality. A representative for Indeck said that while other energy companies can raise their rates to pay for measures to meet emissions standards, it cannot because its rates are controlled by a state agency. The representative also stated that, given current conditions, the company is looking at running the Corinth plant at a loss. Indeck’s lawyers are now claiming that RGGI violates interstate commerce laws.

Aside from forcing New York to potentially withdraw from RGGI, Indeck’s case has far-reaching ramifications that could affect other green policies in New York and, potentially, the entire country. As both climate bills currently under consideration in Congress include the creation of a national cap and trade system, Indeck’s suit could set an example that scores of other power generators around the country follow. Even if Indeck doesn’t win its suit, and New York is able to remain a member of RGGI, Dave Gahl, at the New York watchdog group Environmental Advocates, said the damage has already been done. Gahl said Indeck’s case has caused the state to freeze money that was supposed to be invested in clean energy options, money intended to support homeowners looking to go green.

The fund Gahl refers to was created by the state legislature in September with a law that allowed the state to take money made from carbon credits to support loans to homeowners looking to do environmentally-conscious renovations, like replacing old heating oil boilers or furnaces. The bill, called Green Jobs/Green New York Act, allowed homeowners to get an energy audit if they used a state-certified contractor for the work.

As WNYC notes, some $180 million had been raised through the Green Jobs/Green New York Act but was frozen because of the Indeck case. Since that money has been sitting in reserve, New York Governor David Patterson recently tapped it to help balance the state budget. WNYC said Paterson took “a blowtorch to that block of ice” and used half of the $180 million in what many environmentalists say is a “raid.”

While Indeck’s suit has led to a seemingly glum outcome for environmentalists, it’s not all bad news, one source told WNYC. Columbia’s Michael Gerrard, who teaches climate law, said it’s a positive sign that only one power plant, of the over 200 that fell under the cap and trade bill, sued. Gerrard said this points to fact that this legislation can work. “It is absolutely possible to have a cap-and-trade system that works, that seems to be free of market manipulation or corruption, [if] people can figure out how to use it,” he said to WNYC.