Both major candidates for New Jersey Governor have promised that the State would rejoin the Regional Greenhouse Gas Initiative (RGGI) when they take office.  The New Jersey Legislature has routinely passed legislation to do so, although vetoed by the current Governor.

RGGI is a carbon dioxide (CO₂) cap-and-trade program that currently covers the power sector of nine states in New England and Mid-Atlantic Regions.  Importantly, New Jersey, Pennsylvania and Virginia are not members, although the Governors of Pennsylvania (PA Governor as Candidate and RGGI) and Virginia (VA Governor and RGGI) are also considering joining RGGI.

For New Jersey, rejoining RGGI would be an important first step, but by no means the only one, on the long journey transitioning to a clean energy economy.  The cap-and-trade system puts a price on the emission of CO₂ from generating electricity, which is necessary if New Jersey is to efficiently and cost-effectively reduce its greenhouse gas emissions.  Furthermore, with New Jersey back in RGGI, that should facilitate Pennsylvania and Virginia’s decision to join.  The more member states, the more opportunities there are to reduce CO₂ and therefore the lower the cost of doing so.  Moreover, with New Jersey back in RGGI, from the perspective of Pennsylvania and Virginia, there will be less leakage, i.e., limiting the ability to import electricity from non-member states that avoids the RGGI emission cap.  Of course, the above reasoning also applies from New Jersey’s vantage point.

RGGI in 2016 underwent a program review to further reduce CO2 emissions by 30% by the year 2030 (https://www.rggi.org/design/2016-program-review).  When RGGI was set up, the cap on CO₂ emissions was set high, both for political purposes to limit any electricity price increases while demonstrating RGGI’s feasibility and because natural gas prices were high, meaning a substantial amount of coal was being used to generate electricity.  By reentering RGGI, New Jersey can align its greenhouse gas emission reduction goals based upon the State’s Global Warming Response Act and today’s natural gas prices.  If New Jersey pursues policies to transition to electricity vehicles, then the transportation sector would start to be under the RGGI cap, a desirable outcome.  New Jersey would need to adjust its cap over time to account for this additional demand for electricity.

When New Jersey was in RGGI, the proceeds from the sales of emission allowances went, in part, to fund energy efficiency programs.  New Jersey should consider also rebating part of those proceeds back to electricity ratepayers.  Rebating these proceeds has several advantages.  First, it will build public support for RGGI.  The slightly higher wholesale portion of electricity bills would be partially offset by such rebates.  For those consumers that reduce their electricity consumption sufficiently, they may even be able to come out ahead.  Second, electricity costs (and other energy costs) are regressive, so a rebate, particularly to lower-income consumers would help alleviate this inequity.

In the long run, New Jersey should consider expanding its policy of putting a price on greenhouse gases in the electricity sector to the rest of the economy.  It could start with natural gas used outside the electricity sector and expand to oil.  If these programs are implemented in a revenue neutral fashion, i.e., include rebates to consumers, that would help build public support. A well-functioning greenhouse gas pricing policy reduces the need for having a separate support mechanism for solar, wind and other types of renewable resources.  With a meaningful price on greenhouse gases, renewable resources (as well as nuclear) can compete to supply electricity at the lowest cost.  The State would not need to try to figure out what combination of solar, offshore and onshore wind is the most efficient to achieve its greenhouse gas reduction goals.  Instead, the energy sector through competition, which the State would monitor and support, would do so.

A cap on CO₂ emissions does not solve all problems.  It does not cover methane leakage, a potentially large source of emissions from the production, transmission, and distribution of natural gas.  It also does not sufficiently address local and regional air quality problems, which occur in New Jersey.  Other policies will be needed to address these and other clean energy concerns.  Nonetheless, implementing polices that put a price on greenhouse gases and reduce associated emission combined with recycling the revenues is the critical first step, integrated, with other policies, to successfully and cost effectively transition New Jersey to a clean energy sector.