Massachusetts and eight other Northeast states are slashing by nearly half the amount of carbon dioxide power plants are allowed to emit — a dramatic reduction that is expected to bring in hundreds of millions of dollars to the state for energy efficiency programs while combating global warming.
In announcing the decision Thursday, the states said consumers and businesses should, on balance, see a negligible impact on their electricity bills when the new limits go into effect next year. The biggest impact will be reductions in greenhouse gases — and residents will get financial help making their homes weathertight.
“It is . . . a strong statement that this region, which comprises nearly 20 percent of the national economy, is serious about being stewards of our environment and addressing climate change,” Governor Deval Patrick said.
The revisions to the Regional Greenhouse Gas Initiative agreement come four years after the nine-state program initially placed a cap on emissions of the key gas responsible for trapping heat in the atmosphere.
It was the nation’s first regulatory program that used market forces to try lowering carbon dioxide, but it hasn’t worked as envisioned to drive power plants to invest in cleaner technology to prevent future emissions.
Emissions have plunged in that time, but the cap was not the primary reason. The recession and energy conservation played a role, but mainly, many plants switched from coal to natural gas, which produces less carbon when it is burned to generate electricity. The new plan aims to cut emissions even deeper.
“This agreement means lower greenhouse gas emissions for the region and increased growth and opportunity in our clean energy economy, a major driver of job creation here,” Patrick said in a statement.
The lower cap is expected to bring in an additional $350 million to the state through 2020, which will be used for a host of energy efficiency programs such as weatherizing homes, municipal buildings, and low-income housing. State environmental officials pushed hard for the sharp cut.
In the new agreement, the states adopted the most aggressive emission limits they considered during their negotiations, a stance that gained support after Hurricane Sandy and the reelection of President Obama pushed climate change back onto the national political agenda. The US Environmental Protection Agency has already issued greenhouse gas emission regulations for new power plants and is expected to release rules for existing ones soon. The Northeast states participating in the regional initiative are expected to try to use the pact to help meet any new federal rules.
“By continuing to aggressively cut pollution, Massachusetts and New England will show the rest of America the benefits of the clean energy revolution,’’ US Representative Edward J. Markey, a Malden Democrat and Senate candidate who authored a climate change bill, said in a statement. California also has a mandatory program using market forces to lower emissions.
Massachusetts and nine other states spent years coming up with a plan to cap large power plants’ emissions in 2009 and gradually reduce them by 10 percent over the next decade. New Jersey has pulled out.
The program works like this: Power plants buy emission allowances from states for every ton of carbon dioxide they emit, with plants that emit larger amounts having to buy more allowances than cleaner ones. The number of available allowances is designed to decrease as the overall cap is lowered, raising their price, and ideally, encouraging plants to invest in clean technologies to avoid the higher cost of polluting.
But if emissions are significantly lower than the cap, there is less demand for allowances, driving down their price and giving power plants little financial incentive to invest in cleaner and more efficient technologies. That is exactly what happened: The current regional cap is at 165 million tons of carbon dioxide, but power plants in the nine states emitted only about 91 tons last year, largely because of the region’s growing dependence on natural gas.
The new cap will start at 91 tons in 2014 and be lowered 2.5 percent per year until 2020. The reductions are likely to be even greater because the new formula is designed to permit an even lower cap early on to force power plants to quickly use up inexpensive allowances they already possess.
There is a safety valve if the price of allowances, now $1.93 per ton, climbs too high. If they rise above $4 per ton in 2014 — the threshold escalates annually through 2017 — the regional program will make more allowances available to stabilize costs.
A group of Northeast businesses, organized through Businesses for a Clean Economy, issued a press release praising the program for helping to create 16,000 jobs — including almost 4,000 in Massachusetts — in the clean energy sector and as consumers spent energy bill savings in the local economy. But an official with Associated Industries of Massachusetts said businesses and consumers would pay more for electricity.
“The cost per ton of carbon is going to go up. . . . The generators will have to pay more to operate and they will have to pass the cost onto ratepayers,” said Robert Rio, senior vice president and counsel of the trade group. He said the lower cap will hit natural gas plants, “one of the cleanest fuels we have,” hard because there are not a lot of technological fixes the plants can make to emit fewer greenhouse gases.
State officials disagreed, saying the cost impact on consumers in Massachusetts would be negligible. Modeling done by the greenhouse gas program shows that the average Massachusetts residential customer’s monthly electricity bill of $72 will rise by 39 cents, and the average commercial monthly bill of $455 will rise by $3.89.
The reason the impact is so modest, state Department of Environmental Protection commissioner Kenneth Kimmell said, is because Massachusetts invests more than 80 percent of the program’s proceeds into energy efficiency.
“I am pleased that a bipartisan group of energy and environmental commissioners from nine state recognized that this is not only good environmental policy, but good economic policy,” said Kimmell.
A spokesman for Dominion Resources Inc., which owns Brayton Point, New England’s largest coal-fired power plant in Somerset, said the company was still analyzing the new rules.
Dale Bryk, director of the energy and transportation program at the Natural Resources Defense Council, said that as the EPA prepares greenhouse gas regulations for existing power plants, other states “are more likely in the coming year to kick the tires” of the Northeast’s program.
Yet some environmentalists said more needs to be done if Massachusetts is going to meet its goal of an 80 percent reduction in greenhouse gas emissions by 2050. “Today’s action to strengthen the regional electric power plant cap-and-trade program is a step in the right direction, but we have a long way to go,” said Sue Reid, director of Conservation Law Foundation in Massachusetts.