Thursday, December 17, 2009

Growing State Budget Deficit Results In Raid On Energy Conservation Program Funds

Ten Northeast and Mid-Atlantic states participate in the Regional Greenhouse Gas Initiative (RGGI) which implemented the first market-based, mandatory cap-and-trade program in the country. Carbon dioxide emission allowance auctions began in September 2008. Since this first auction, more than 140 million allowances have been auctioned off raising almost a half a billion dollars in proceeds for the ten participating states, proceeds that are suppose to support state clean energy agendas. Under the Memorandum of Understanding signed by the 10 RGGI states, the states agreed to use auction proceeds for energy conservation and clean energy programs. New York State, for example, developed a plan to use its share of the proceeds to fund energy efficiency and renewable energy programs to help families, businesses and local governments reduce their energy bills while investing in clean energy technologies that will create jobs and reduce the state's carbon footprint. A number of initiatives to help reduce the disproportionate energy cost burdens on low income families were also included in the program.
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Then came the worst recession since the Great Depression, and even the best laid plans can go astray! New York State found itself with a budget deficit estimated to be close to $3.9 billion. On October 15, 2009, New York State Governor David Patterson proposed using $90 million of the RGGI proceeds (of which New York's total share to-date is $180.7 million) to help close this budget deficit, rather than for energy conservation and clean energy programs as originally planned. Nearly all of the remaining RGGI funds have been committed to other initiatives, effectively zeroing out this pioneering program's budget. The Governor's proposal still needed approval by the State Legislature and many did not expect much support for the proposal, but on December 2, 2009, the State Assembly and Senate passed a deficit reduction program worth $2.7 billion that, unfortunately, included provisions to transfer $90 million in RGGI proceeds to the General Fund. So much for the best laid plans of state politicians!
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It was not long ago when I can remember politicians and environmentalists wanting to get New York State into the RGGI program proclaiming and promising that RGGI proceeds would only be used for energy conservation and clean energy measures. And to anyone who thought that the RGGI cap-and-trade program would increase energy costs, they argued strongly that it would not, and even went so far as to suggest consumers would see a reduction in energy costs because RGGI proceeds would have the net effect of saving money. What a bill of goods we were sold! But there is a lesson to be learned, and that is "what politicians givith, they can just as easily taketh away!" This lesson should not be forgotten by anyone, including those in our industry, who are planning to rely on government incentives and grants to justify their return on investment.
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As the year comes to a close, this will be my last blog of 2009. As such, I want to take this opportunity to thank all of you who routinely emailed me your comments and provided me with suggestions for new blog material. I wish each and every one of you a very happy holiday and a happy and healthy New Year.

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