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