Thank you, Mr. Chair, for the invitation to speak with you today. I'm sorry not to be there in person and I really appreciate the quick work of your team to link me in by videophone.
My name is Derek Murrow. I'm the energy and climate policy director at ENE. ENE is a regional, non-profit environmental research and advocacy group, headquartered in the State of Maine, and we work both at the state, provincial, and federal levels with staff based throughout the northeastern U.S. We also have a cross-border mission and maintain staff in an office in eastern Canada. Leslie Malone from ENE is, I believe, there with you today. I thought I could see her in the audience briefly.
I lead our energy and climate work. I was a representative as an official stakeholder in the development of the Regional Greenhouse Gas Initiative, which is known as RGGI, the first and only mandatory carbon cap and trade program in the U.S. I was the lead author on our policy report, A Climate Change Road Map for New England and Eastern Canada, and I also oversee our energy policy work at the state level, which now requires utilities to invest in all cost-effective energy efficiency and is leading to historic new levels of efficiency investment in New England. I also have the pleasure of working closely with policy makers in Washington, D.C. on elements of federal climate and energy legislation.
We think it's true that all politics is local, and we have had the good fortune of working closely in Washington, D.C with Representative Markey from Massachusetts on the House climate and energy bill; with many members of the Senate environment committee from the northeast; with Senators Kerry and Lieberman as they craft what will be the final leadership bill in the Senate; and also with critical swing voters such as Senators Snowe and Collins from Maine and Senator Gregg from New Hampshire.
The recently announced delays in the U.S. Senate timeline, until later this winter or early spring, are clearly not ideal; however, we believe there is a significant level of support for action in the U.S. Congress, as many stakeholders, including importantly business and labour interests, prefer a negotiated legislative outcome rather than facing a patchwork of regional and state rules as well as potential federal EPA regulations under the existing Clean Air Act authority.
I want to highlight that the legislation being considered by the U.S. Congress is complicated and massive. Congress is trying to include almost all of the details of cap and trade in legislation, unlike what you're considering today, and thus there is a lot of debate. Designing and passing legislation of this scope and complexity is extremely hard. It is my sense that members of Congress are focusing primarily on addressing the concerns of their constituents, and it is challenging to focus their attention on issues such as linking or how a North American system can be created and integrated. ENE would like to see a strong collaboration to develop such a North American system, at least with linkage, and we are raising issues of cross-border energy trading, offset design, and the carbon content of fuels in our work in D.C.
While the details of how a U.S. system will play out are not yet known, we know what the major U.S. cap and trade design elements will likely be. ENE believes U.S. and Canadian programs could be linked, assuming the following: one, that both have fixed caps with similar emissions reduction trajectories; two, that all gases, major industrial sectors, and fossil fuels are covered; three, that there are rigorous offset standards; four, that if necessary they have similar price control mechanisms; and finally, fifth, that they produce similar carbon price outcomes. However, until both countries have detailed policy proposals on the table, it is hard to fully judge how likely linkage is, which is both technical and importantly political in nature.
l wanted to draw your attention to two issues that have been key lessons learned from RGGI in the northeast and that we have been spending a lot of time on in Washington, D.C. Both are highlighted in our policy brief, of which we hope you have a copy.
First, we in the northeast and other policy analysts have reached an essential finding that applies to any cap and trade program: energy efficiency should be the primary cost containment tool. l repeat that, because we think it's really critically important: that energy efficiency can be the primary cost containment tool. When a cap is imposed on carbon emissions and energy consumption rises, the program can lead to higher energy costs; however, when the program invests in measures that make buildings and industry more efficient, it helps level demand for energy, putting money back in consumers' pockets at a net savings and driving down the costs of cap and trade significantly.
You will see on page 6 of our policy brief a graph that illustrates the benefits of increased efficiency investments as modelled for the RGGI program. This figure shows projected increases in electricity prices under the RGGI cap, with and without expanded energy efficiency investments. The doubling of efficiency programs has the effect of offsetting most of the carbon price increase in the RGGI case.
The RGGI states have chosen to auction almost 100% of allowances, and the economic and jobs benefits of energy efficiency have led the states to invest a majority of the revenue from auctioning allowances in expanded energy efficiency programs. It is not a small percentage of allowances, but a huge 65% of revenue.
ENE just completed a report examining the macroeconomic effects of expanded energy efficiency investments for the six states in New England. This report, “Energy Efficiency: Engine of Economic Growth”, looks at the three dollars consumers save for every dollar invested in energy efficiency programs and finds that as these savings are recirculated and invested in the local economy, the result is actually a six-times to nine-times increase in state GDP for every dollar invested. A summary of this report can also be found on page 9 of our policy brief.
Federal climate bills in the U.S. are recognizing the benefits of energy efficiency and making similar commitments to use carbon dioxide allowance value through the states and through natural gas and, potentially, electric distribution companies to expand investments in energy efficiency. Efficiency investments are an essential way to contain costs and to make our economy more competitive in a carbon-constrained world.
A second lesson learned that I wanted to highlight is that modelling and forecasting are almost always wrong, and in the case of cap-and-trade programs often overpredict costs. RGGI again offers a good illustration of this, which is also consistent with previous experience with the U.S. acid rain and ozone cap-and-trade programs.
When RGGI participants, us included, debated how the underlying modelling should be conducted and what level the emissions cap should be set at, all were in agreement that emissions, all else being equal, were likely to stay stable or rise over time, with carbon prices doing the same. In fact, a change in the relative price of natural gas in relation to coal and oil has driven emissions from northeastern power plants down dramatically. There is as much as a 19% decline. This can be seen in the figures on page 5 of our briefing, which show the decline in RGGI emissions versus the cap and also the change in natural gas prices in relation to other fuels.
If these kinds of market changes and expanded access to lower-carbon fossil resources can occur so quickly with corresponding declines in emissions, just think what the combined effect would be if additional breakthroughs occur in building insulation, solar power, or electric batteries for cars. Modelling is based on what we know today, but we can't predict the kinds of breakthroughs that will occur if there is a carbon market that spurs new innovation and discovery.
Thank you for your time. My colleague Leslie Malone, who some of you may know and who is based in P.E.I., is in the room with you. She and l look forward to being a resource to you today and down the road as you tackle this essential issue.
Thank you.