Speaker 1: Today on the podcast we're talking about Reggie. No, not
Speaker 1: that Reggie. We're talking about the regional greenhouse gas initiative.
Speaker 1: It's been almost twenty years since a bunch of northeastern
Speaker 1: states tried to team up to reduce their emissions. How's
Speaker 1: it going and why does it seem like Reggie has
Speaker 1: an entrance and exit that's a revolving door? Hello and
Speaker 1: welcome once again to parts per billion, the environmental podcast
Speaker 1: from Bloomberg Law. I'm your host, David Schultz. So, as
Speaker 1: I mentioned, today we're gonna be talking about Reggie. The
Speaker 1: intergovernmental body has been around for a while now, but
Speaker 1: it's never really felt totally stable. The latest SHACOB may
Speaker 1: come next year, when Pennsylvania will be getting a new governor.
Speaker 1: Neither candidate running to succeed the retiring Tom Wolfe seems
Speaker 1: enthusiastic about Reggie, even though the state just joined the
Speaker 1: organization earlier this year. So right now you might be
Speaker 1: asking what is Reggie? Well, at its base, Reggie is
Speaker 1: a cap and trade program. It's twelve members, all of
Speaker 1: them states in the northeastern us, agree to put a
Speaker 1: cap on the amount of greenhouse gas emissions their power
Speaker 1: plants can emit. Power plants that exceed that cap have
Speaker 1: to buy credits from power plants that go under, and
Speaker 1: the prices for those credits are set by an auction.
Speaker 1: It's the type of market spased approach that makes economists swoon,
Speaker 1: and today we have an economist on to talk about
Speaker 1: how Reggie has been doing and whether it can survive
Speaker 1: yet another one of its members heading for the exits.
Speaker 1: Bill chob is a professor at the University of Virginia,
Speaker 1: another state that, by the way, may also be leaving Reggie.
Speaker 1: He spoke with Bloomberg Law reporter Jennifer K about where
Speaker 1: Reggie is heading and how it got started. The origins
Speaker 1: are that in two thousand and three people thought they
Speaker 1: might try to put a program together and it took
Speaker 1: quite a lot of negotiations. You know, these are these
Speaker 1: are ten, at the time, ten states. It was ten
Speaker 1: independent states. They had to agree on terms and it
Speaker 1: was pretty amazing to watch the states come to agreement
Speaker 1: on this big chain, but a voluntary agreement to control
Speaker 1: their emissions and a voluntary agreement on how to Parse
Speaker 1: out emission control among the states. Uh, it really is
Speaker 1: pretty astonishing in retrospect. That these independent states were. We're
Speaker 1: able to do that. Yeah, and these are states that
Speaker 1: don't always do the same thing together. You're talking about
Speaker 1: states in the northeast and the mid Atlantic. They don't
Speaker 1: always have a Democrat in office as governor, they don't
Speaker 1: always have Republican led legislatures. Um. So it must have
Speaker 1: been a lot of work to get, you know, ten
Speaker 1: and now potentially eleven uh states working in conjunction on
Speaker 1: on this one issue. Um. But now it's it's, I guess,
Speaker 1: a little over a decade since it's been really in effect.
Speaker 1: Can we say whether Reggie has been a success or
Speaker 1: a failure at this point? Um, it's a great question,
Speaker 1: but of course it's it's not possible to give you
Speaker 1: a totally definitive answer because it's not the only thing
Speaker 1: that has changed. Immediately after Reggie decided on its cap, uh,
Speaker 1: natural gas prices fell, and so that was gonna cause
Speaker 1: big changes all by itself. And of course the cost
Speaker 1: of alternative energy technologies has fallen a lot during this period.
Speaker 1: Part of that, of course, is because many states have
Speaker 1: decided to kept their emissions Um. But also since that
Speaker 1: time the states have also implemented parallel policies, other policies
Speaker 1: that are designed to address the emission intensity of their
Speaker 1: electricity sector. So lots of other things have changed. So
Speaker 1: if you're going to ask what affected Reggie have you
Speaker 1: have to try to tease out its effect from all
Speaker 1: the other things going on at the time. So there's
Speaker 1: no way to give a fully definitive answer. But the studies,
Speaker 1: the serious studies that have been done that have tried
Speaker 1: to parse out the different influences here, indicate that Reggie
Speaker 1: has had a very substantial effect on emissions. Right now
Speaker 1: the reggie prices just over thirteen dollars a ton, and
Speaker 1: you think about even in earlier times when it was six,
Speaker 1: seven eight dollars a ton. We're adding that additional cost
Speaker 1: essentially per megawatt hour of coal generation, and so that's
Speaker 1: a very significant increase in uh the relative marginal cost
Speaker 1: of using coal relative to natural gas or natural gas
Speaker 1: relatives some non emitting technology. So we have to expect
Speaker 1: that it would have an effect at the margin. And
Speaker 1: up until really this year the participating states were not
Speaker 1: big fossil fuel producers, they weren't big energy exporters. And
Speaker 1: then you have Pennsylvania where you had governor Tom Wolfe,
Speaker 1: who's a Democrat, Um really by executive order bring the
Speaker 1: state into the initiative. You know that's that seemed like
Speaker 1: would be a really big deal because Pennsylvania is such
Speaker 1: a significant fossil fuel producer. It would be the only
Speaker 1: fossil fuel producer in Reggie if it manages to stay
Speaker 1: in the initiative. You know, now that's something that's kind
Speaker 1: of up in the air because you have litigation. The
Speaker 1: Republican lawmakers in the state who lead the legislature, uh,
Speaker 1: say it's it's a say it's a bad idea, they
Speaker 1: want to not participate, and then you have a governor's
Speaker 1: race that could decide whether Pennsylvania stays in as well.
Speaker 1: For Reggie, getting a major energy producer and exporter like
Speaker 1: Pennsylvania to participate would seem like a really big get.
Speaker 1: So what does the initiative gain if Pennsylvania stays in?
Speaker 1: When you think about the benefits of mark gets as
Speaker 1: UM mechanisms for controlling emissions, one of the big gains
Speaker 1: is flexibility and how those emission reductions are obtained. And
Speaker 1: so the sources have a lot of flexibility and how
Speaker 1: the emission reductions get done. And when trading is the mechanism,
Speaker 1: the greater the participation, the larger gains from trade are
Speaker 1: going to tend to be well. With Pennsylvania you have
Speaker 1: a much different group of participants, as you say. There are.
Speaker 1: First of all, there's lots more natural gas generation. Pennsylvania
Speaker 1: has shifted a lot from cold and natural gas, like
Speaker 1: everyone else over the last couple of decades. What this
Speaker 1: implies is that they are likely to be get big
Speaker 1: gains from trade between Pennsylvania and the rest of Reggie.
Speaker 1: There will be opportunities for increased reductions in the lost
Speaker 1: the tricky thing for Reggie when you let any new
Speaker 1: state in, and this was true when Virginia joined just
Speaker 1: last year, is you have to try to fit the
Speaker 1: new state, the new traders, into the market without disrupting it.
Speaker 1: And it turns out that when Virginia joined there was
Speaker 1: a pretty good match. You didn't see the market move
Speaker 1: at all. The prospect of Pennsylvania joining hasn't moved the
Speaker 1: market that much in Reggie so far, and so maybe
Speaker 1: they've made a pretty good match. And it also reduces
Speaker 1: what we think of as the margin for leakage. If
Speaker 1: you if you try to control emissions in one set
Speaker 1: of states but other states are not controlling emissions, then
Speaker 1: you have to expect that some generation and some economic
Speaker 1: activity will move across the boundary. Uh and Um. What
Speaker 1: evidence we have is and of course there has been
Speaker 1: some leak it out from under the Reggie Cap. How
Speaker 1: much that leakage is is really hard to tell. There
Speaker 1: have been lots of efforts to measure it, but it
Speaker 1: seems fairly manageable. Um. Pennsylvania joining greatly reduces the marginal
Speaker 1: leak out of the rest of Reggie. So you mentioned Virginia,
Speaker 1: which is another recent addition, but it also might be
Speaker 1: not long for participation. You know the new Republican governor,
Speaker 1: Governor Unken in Virginia, wants to withdraw from Reggie. Um,
Speaker 1: I think kind of with or without the legislature's support.
Speaker 1: In Virginia and Pennsylvania aren't the only states where this uncertainty,
Speaker 1: how has come up with Reggie. You know, New Jersey
Speaker 1: was a member initially and then Governor Christie, Chris Christie,
Speaker 1: withdrew and but now New Jersey's back in. So I'm
Speaker 1: wondering if participation depends on WHO's in power and how
Speaker 1: that party presents that plan to the public. Was Reggie
Speaker 1: designed to withstand states kind of, you know, coming in
Speaker 1: and out depending on what the political winds are? Well,
Speaker 1: the first thing I want to say is, is the
Speaker 1: market for anything designed to withstand new entrants? What we
Speaker 1: see it all the time now. We're not always working
Speaker 1: with U states as entrants and potential exeiters, but the
Speaker 1: one thing you want to be concerned about is is
Speaker 1: the market that remains competitive. What would be bad is
Speaker 1: if states entering and exiting caused big gyrations in the
Speaker 1: market price. That hasn't been true up to now. When,
Speaker 1: when Governor Christie UH decided he didn't like markets anymore
Speaker 1: and claimed that he could actually do better by regulation.
Speaker 1: You know, this leaves economists scratching their heads. Right UH,
Speaker 1: emission markets were Republican initiative to to to use market
Speaker 1: instruments instead of regulations for environmental regulations. Unfortunately, emission markets
Speaker 1: got tied in two CEO to emission control during the
Speaker 1: Obama administration, when there was an effort to implement a
Speaker 1: cap and trade program and to economists, the Republicans turning
Speaker 1: against markets was like throwing the baby out with the bathwater. Now,
Speaker 1: um it seems to be a matter of Um conflating
Speaker 1: emission markets with efforts to reduce C o two emissions,
Speaker 1: and that's really unfortunate. But let's get back to New
Speaker 1: Jersey lead ving. When New Jersey left Reggie, it didn't
Speaker 1: so much as cause a ripple in the markets at
Speaker 1: the time because the remaining market was quite competitive and
Speaker 1: New Jersey's level of effort was similar to the rest
Speaker 1: of Reggie and there was very little effect on the market.
Speaker 1: And when Virginia joined there was also, it appeared, very
Speaker 1: little dramatic, very little noticeable effort on the market. So
Speaker 1: ultimately the answer to your question is that what we
Speaker 1: care about is whether the remaining market remains competitive and
Speaker 1: that is not Um really in question here. Remember, this
Speaker 1: is a coalition of the willing. We've got to expect
Speaker 1: states to come and go as the political winds change.
Speaker 1: The original Reggie states have found this a very effective
Speaker 1: program and have stayed in it. You know, New Jersey
Speaker 1: tried to leave but came back in because it turned
Speaker 1: out that it's in their interest to be part of Reggie.
Speaker 1: I think at one point early on you brought this up.
Speaker 1: But let's let's circle back to it. If Reggie was
Speaker 1: the original? Um, how does it interact with, or compared to,
Speaker 1: the newer cap and trade programs that we're seeing on
Speaker 1: the west coast? You know, California launched its own, with
Speaker 1: kind of mixed reviews, I think, and now you have
Speaker 1: Washington and Oregon following, and now you also have the
Speaker 1: tax incentives and funding for reducing emissions in the Federal
Speaker 1: Inflation Reduction Act. So where does does Reggie still have
Speaker 1: a role to play or or how do all of
Speaker 1: these programs interact with each other? Wow, that's a lot
Speaker 1: right there. I'm sorry. Alright, so let's talk about Reggie
Speaker 1: being the original. First, the original Reggie discussions took place
Speaker 1: at the same time that folks in the European Union
Speaker 1: were discussing on a mission trading program over there, and
Speaker 1: the E U s emission trading system got started before
Speaker 1: Reggie's program actually was operational, but the discussions took place
Speaker 1: about the same time. And Uh, and I think it's
Speaker 1: widely acknowledged that the first phase of the EU emission
Speaker 1: trading scheme, the e T S, was not very successful.
Speaker 1: It ended up with the price falling to zero and
Speaker 1: causing a lot of Um a lot of stress among
Speaker 1: policy makers and compliance entities. At the same time, Reggie
Speaker 1: implemented a very clean market mechanism that has really stood
Speaker 1: the test of time. The EU E T S has
Speaker 1: been through Um a couple of pretty substantial redesigns. Um
Speaker 1: the E T S was very clean market design that
Speaker 1: has worked quite well. Actually, again, it had the advantage
Speaker 1: of just addressing the electricity sector, not the whole economy.
Speaker 1: That's a harder task, and so on. California, and joined
Speaker 1: by Quebec UH decided to implement a cap and trade
Speaker 1: program their initial design was implement eventually implementing it for
Speaker 1: the whole economy, including transportation, fuels and and everything else. So,
Speaker 1: to be fair, that's a harder task. But it is
Speaker 1: very clear that the design in California borrows from the
Speaker 1: design the regional greenhouse gas initiative. For example, the quarterly
Speaker 1: auction of allowances is essentially implemented in the same way
Speaker 1: and the market instrument is very similar in the way
Speaker 1: it works in California and Washington is now in the
Speaker 1: process of of Um putting in place. In fact, I
Speaker 1: think they're considering their regulations are under review right now
Speaker 1: for implementing a cap and trade program that can be
Speaker 1: linked to California's with Oregon. I think I don't know
Speaker 1: as much about the Oregon plan, but it doesn't seem
Speaker 1: to be as clear that they have a strategy for
Speaker 1: linking up with the other states, but they are implementing
Speaker 1: a sort of cap and trade program. But remember, these
Speaker 1: programs are now being emulated all across the world. There
Speaker 1: are cap and trade programs in New Zealand and North Korea,
Speaker 1: in China, and so the effort that Reggie and the
Speaker 1: e t e u e t s went through to
Speaker 1: put an emission cap in place in the mid two
Speaker 1: thousand's has spawned other programs both in the US and
Speaker 1: across the planet. That was Bill Shobe, an economist and
Speaker 1: professor at the University of Virginia, speaking with Jennifer K
Speaker 1: and that's every day's episode of parts per billion. If
Speaker 1: you want more environmental news, check US out on twitter.
Speaker 1: We use the handle at environment. Is that at environment,
Speaker 1: nothing else? I'm David B Schultz. If you want to
Speaker 1: talk to me about Reggie Jackson or any other Reggie.
Speaker 1: Today's episode of parts for billion was produced by myself,
Speaker 1: David Schultz. Parts for billion was created by Jessica combs
Speaker 1: and Rachel Dagle and is edited by Zack Shrwood and
Speaker 1: Chuck mccutcheon. Our executive producer is Josh Block. Thanks everyone
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