REVIEW & OUTLOOK JUNE 3, 2011 WSJ.com
How politically unpopular is cap-and-trade policy? So much that Governor Chris Christie announced late last week that he's pulling New Jersey out of the 10 state Northeast Regional Greenhouse Gas Initiative, which was designed to create a trading auction for the right to emit carbon dioxide.
The Garden State is a left-of-center suburban state highly sensitive to symbolic environmental politics, yet Mr. Christie felt he could safely withdraw on economic grounds. The Republican said he believes that climate change is real and that human activity is "part of the problem." But he called the regional compact a "failure" because it has not "changed behavior and it does not reduce emissions." He added that the tax on emissions was hurting efforts to "make New Jersey a more business-friendly environment and a place where private sector jobs can continue to be created."
Like other green dreams, cap and trade was sold as an economic boon that would create thousands of new jobs in "clean" energy. New Jersey, which joined the greenhouse compact in 2007 under Democratic Governor Jon Corzine, has discovered the opposite. The state's bill for cap and trade has already exceeded $100 million in costs—mostly imposed on power plants and largely passed on to families and businesses.
One of those businesses is Ocean Spray, of cranberry product fame, which announced in early May that it will abandon its oldest plant in Bordentown, New Jersey and build a new $120 million facility in Pennsylvania's eastern Lehigh Valley. The move will cost New Jersey 250 jobs.
Ocean Spray spokesman John Isaf says that operating in Pennsylvania will save about $15 million a year mostly in "lower utility and transportation costs, taxes, and other operating expenses" and that these savings were "too large to ignore." Industrial electricity costs in New Jersey in January averaged 12.04 cents per kilowatt hour, or almost 50% more than the 8.15 cost in Pennsylvania and almost twice the national average of 6.73. New Jersey's mandate that by 2021 22.5% of electricity must come from costly renewable energy has also raised costs, but cap and trade has made the problem worse. Pennsylvania isn't a cap-and-trade state.
Other states are also rethinking higher carbon energy taxes. New Mexico Governor Susana Martinez was elected last year in part by promising to suspend a cap-and-trade rule enacted in 2010 by the state's unelected Environmental Improvement Board. "The science doesn't support the regulations," concluded Ms. Martinez. So far the state courts have blocked her efforts.
Last year Californians voted to continue their state's 2006 cap-and-trade tax, and Golden State politicians have tried for years to persuade neighbors like Nevada, Washington and Oregon to join in a regional plan. But these states have decided they'd rather not have their jobs go to Chattanooga or China. Governors in Arizona and Utah have issued executive orders banning cap and trade. And the New Hampshire House has passed a law to join New Jersey in dropping out of the Northeast carbon compact, but Democratic Governor John Lynch may veto it.
Mr. Christie's decision in a state with a powerful green lobby shows that politicians are learning that imposing a unilateral tax on businesses is no way to create a prosperous economy, balance a budget or even do anything about global warming. Its main effect is to drive jobs to economic rivals—and bravo to Mr. Christie for doing something about it.