By Eric Fehrnstrom  |   Wednesday, April 22, 2009

As President Barack Obama pushes for a national cap-and-trade system, results are starting to come in from the nation’s first mandatory program to limit carbon emissions and they foreshadow higher electricity prices for all.

The Regional Greenhouse Gas Initiative (RGGI), got under way on Jan. 1 and covers power plant operators in Massachusetts and nine other Northeast and Mid-Atlantic States. RGGI caps carbon emissions at current levels through 2014, and then reduces them 10 percent by 2018.

At the center of it is the concept of selling to power plants the right to discharge CO2 into the air, something they previously did for free, turning it into a lucrative revenue source for government.

The “cost to pollute” is expressed as the price to emit a ton of carbon. The first auction of permits was held last September, when the price was set at $3.07 per ton, more than 50 percent higher than the $2 predicted by the University of New Hampshire.

The price increased to $3.38 in a second auction in December. It went up to $3.51 in a third auction in March.

Through this nifty scheme, states so far have pocketed $262 million from the power-producing sector, which can only come from one place: electricity users. Auctions are held quarterly, and the per-ton price will rise as the carbon caps are lowered over time and speculators get in on the game.

Not wasting any time, the Public Service Company of New Hampshire - which services one of the participating states - has already filed a request to raise rates, the first of many increases to cover RGGI.

Aside from punishing polluters, one of the ideas behind RGGI and cap-and-trade in general is to make alternative energy sources economically viable. The easiest way to do that is to make fossil fuel-powered energy more expensive. If consumers get hurt, so be it.

What cap-and-trade ignores is the mobility of companies that want to avoid the taxing effects of RGGI. Energy-intensive industries will simply migrate to where there are no caps. The result is the same amount of pollution, just fewer jobs where cap-and-trade is in effect.

There are other problems. A natural gas plant in Corinth, N.Y., filed suit against the new system because it sold electricity under long-term fixed-price contracts. Without the opportunity to pass on RGGI costs to customers, it may go out of business. In response, New York Gov. David Paterson wants to revisit the RGGI agreement to allow him to hand out “free” allowances.

One unsympathetic environmentalist dismissed the complaint by noting that higher costs are the price “for dumping greenhouse gases into the atmosphere.”

But that’s not how cap-and-trade was sold. Back in 2005, the sweet-talking Conservation Law Foundation hyped dubious studies to claim that RGGI “could cut electric bills for most businesses and residential users.”

Not even the president believes that propaganda. Obama is eying RGGI as a national model. In a 2008 interview with the San Francisco Chronicle, then-candidate Obama was honest about what cap-and-trade would mean for the nation.

“Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket,” he said. “You know, regardless of what I say about whether coal is good or bad, because I’m capping greenhouse gases, coal-powered plants, you know, natural gas, you name it, whatever the plants were, whatever the industry was, they would have to retrofit their operations. That will cost money. They will pass that money onto consumers.”

In line with Obama’s prediction, RGGI is raising costs and forcing energy producers to “pass that money onto consumers.” It couldn’t come at a worse time for a struggling economy.