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We needed cash and we needed it fast. The state was literally running out of money.

Cash strapped states divert climate change money for other projects

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Last week, New York and nine other Northeastern states auctioned off millions of carbon pollution credits to power companies.

Companies that pollute more, and create more greenhouse gases, have to buy more credits. The program is designed to reward more environmentally-friendly energy producers, while also raising tens of millions of dollars to fund conservation.

But critics say some states have begun using the cap-and-trade system as an invisible tax, spending the revenue on projects that have nothing to do with the environment or climate change. Brian Mann has our story.

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Brian Mann
Adirondack Bureau Chief

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On a frosty night in Middlebury, Vermont, Laura Asermily trudges through the snow, studying rooftops.

"And you can see the evidence of heat loss here."

Asermily is a volunteer with a statewide project called Efficiency Vermont that helps people insulate their houses, cutting energy costs and cutting the amount of greenhouse gas they produce. 

On this night, she heads down into the cellar of her neighbor and friend, Sas Carey, looking for easy ways to make this cottage more snug.  

"So we have a typical cement block basement, terrible – conducts in all the cold." 

The home owner, Sas Carey, says she learned that she may qualify for a low-cost government winterization program.

"The thing that amazes me is to think that it actually could be warmer in my house – and more comfortable.  Warmer and cooler and, you know, more energy efficient."

This project was paid for in part by a new source of revenue called the Regional Greenhouse Gas Initiative, also know as REGGIE.

Beginning in 2008, ten Northeastern states began auctioning carbon pollution credits to companies that operate big power plants.  

So far, the auctions have raised more than $770 million – much of it going to pay for programs like the one in Middlebury.

"The vast majority of RGGI money is being used for energy efficiency." 

Peter Shattuck is with a green group in Boston called Environment Northeast. 

He says carbon credits are designed to give power companies a cash incentive to produce cleaner, more climate-friendly power. 

And revenue from the auctions has also paid for hundreds of these renewable energy and conservation projects – putting solar panels on schools, for example, and helping low income families buy insulation.

"Which not only reduce fossil fuel imports, but also emissions, and the money being saved on energy bills flows into the local economy."

But beginning last year, at least three participating states – New Hampshire, New Jersey and New York — began using their RGGI money to pay for things like schools, roads and healthcare that have nothing to do with the environment.

Peter Iwanowicz is New York state’s acting Environment Commissioner.

"It was sort of a tough decision that we had to make last year at this time to divert 90 million dollars of proceeds from the Regional Greenhouse Gas Initiative auctions to go to cover bills that we had due for local school districts."

Iwanowicz says New York is committed to RGGI’s goal of cutting CO2 emissions in the Northeast by 10 percent  over the next eight years.  

And he insists that diverting the money was an extraordinary event – triggered by the recession and by the state’s brush with bankruptcy.

Actuality:  I mean this was a one- time deal that we needed cash and we needed it fast.  The state was literally last December running out of money.

But supporters and critics alike say the temptation to use RGGI revenues for other projects is likely to grow. 

"It reveals the fact that cap-and-trade is just a new tax."

Steve Lonegan is the New Jersey director of an energy-industry financed group called Americans for Prosperity. 

Lonegan questions whether climate change is a serious problem – and like many conservatives he opposes cap-and-trade style programs.

"It’s another form of taxation that will continue to expand and eventually all states will be taking all of this money over time.  It’s going to drive up energy rates and destroy economic prosperity.  And what these governors have found is that this is a source of taxation that people don’t know about."

Supporters of RGGI point out that there’s no evidence that these carbon auctions have raised utility rates by a significant amount. 

And most states ARE still using most of the auction money  — about 80% — for environmental projects.

But John Sheehan, with a green group called the Adirondack Council, agrees that the temptation to use RGGI revenue for other things will be hard to resist.

"It’s our sincere hope that this is a short-term phenomenon.  The recession and the pressure that’s been put on state governments to come up with money from everywhere has really taken a toll on its ability to do what we’d hoped that it would do in the first couple of years." 

Time will tell whether New York and other states will divert more of their RGGI money.  The rules only require that participating states use a fourth of their carbon auction revenue to boost conservation and renewable energy. So far every state has met that goal.

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