Tighter Pollution Cap Could Get RGGI States $3.2B Extra

July 31, 2017/ Jackson Morris / Climate, Conservation, Europe, Lands, Natural Resources Defense Fund, Resources

Published by the Natural Resources Defense Fund

The nine states in the Regional Greenhouse Gas Initiative (RGGI) would gain $3.2 billion extra in clean energy funding—nearly a quarter-billion dollars more annually—by choosing the most ambitious power plant pollution cuts currently under consideration for the next phase of their pioneering climate program, according to a new NRDC analysis.

The most ambitious RGGI trajectory (Scenario #3) would provide nearly a quarter of a billion dollars more in carbon revenues annually to states, compared to the least ambitious trajectory (Scenario #1).

The RGGI states—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont—are expected to decide in the coming weeks how fast and by how much they will cut pollution from 2018 through 2030. That decision also will have a significant impact on the amount of money the states earn under RGGI pollution permit auctions that can then be directed toward popular clean energy programs to help cut their residents’ energy bills.

Based on modeling released by the states last month, NRDC’s analysis shows the states could earn $3.2 billion more for their state clean energy programs by selecting the tightest emissions cap under consideration (i.e., the states’ Scenario #3) compared to the least ambitious cap option modeled (Scenario #1, which would only maintain the program’s status quo power plant pollution reduction rate of 2.5 percent per year).

The extra earnings from going for the tightest emissions cap the states modeled—a 3 percent pollution reduction annually plus an additional cut of 6.5 percent in 2019—don’t even include the associated benefits, such as cleaner air resulting in fewer medical expenses. Another option under consideration, Scenario #2, would cut emissions by 3.5 percent annually but not include the 2019 boost so the total pollution reduction would be less. Ultimately, the strongest cap under consideration (Scenario #3) is needed to maintain the RGGI states’ climate leadership, and as we wrote recently, even tighter caps are achievable and would provide even more benefits to the region.

While the RGGI states have modeled the projected pollution cuts under the three scenarios, they did not release figures on the potential revenues connected with each option. NRDC’s analysis fills this gap.

Under the RGGI program, power plants buy permits (aka allowances) at quarterly auctions that allow them to emit a specific amount of carbon pollution. (Each year, the total amount of pollution—or cap—decreases, as does the number of available permits. Permits purchased at auction can also be traded—bought or sold—by power plants in secondary markets.) The RGGI states then invest the bulk of the auction revenues in energy efficiency, renewable energy, energy bill assistance for low-income consumers, and other programs as they see fit. (Note: When the RGGI states were first crafting their program, they wisely recognized that auctioning allowances to polluters and reinvesting the revenues for the benefit of consumers was the right decision to make rather than giving allowances away to polluters for free, which would have been a windfall for those polluters and denied consumers the many benefits RGGI has provided. This is a critical lesson for states like Virginia that are currently looking at their own program structures.)

Since its launch in 2009, RGGI has helped cut power plant emissions in the region by more than 40 percent; contributed at least $2.9 billion in economic growth; delivered $5.7 billion in public health benefits (cutting power plant pollution also reduces conventional, illness-causing air pollutants) and created 30,000 job-years (a year of full-time employment for one person.)

RGGI’s investments in energy efficiency and renewable energy have saved residential and business consumers $618 million on their energy bills, with $4 billion more expected in the coming years. For every $1 in RGGI allowance revenues reinvested over the program’s first six years, consumers are expected to save more than $3. Based on this rate of return, the extra revenues under the tightest cap under consideration could produce an estimated $10 billion more in consumer energy bill savings compared to the status quo.

Billions of dollars more for clean energy

Our analysis is based on the three potential RGGI futures that the RGGI states modeled and presented to stakeholders last month. The states might ultimately decide on one of these three options, or on some other combination of cap trajectories and policy reforms not presented at the last stakeholder meeting.

From this analysis, we calculate that total RGGI revenues to the states between 2018 and 2030 would be $4.9 billion under Scenario #1, $7.2 billion under Scenario #2, and $8.1 billion under Scenario #3. The difference between Scenario #3, the most ambitious cap modeled, and Scenario #1, the least ambitious, is $3.2 billion, or an average of $243 million more per year under Scenario #3 over the 13-year period. (See the note at the end of this blog for information on how we calculated these revenues.) For comparison, the states have raised a total of $2.7 billion from RGGI auctions to date.

RGGI revenues are apportioned according to each state’s historical emissions. And every state stands to benefit from a tighter cap. For simplicity, below we compare the revenues states would receive under Scenario #3 (tightest cap) with those under Scenario #1 (status quo) only. Revenues under Scenario #2 would be in between these figures.

Connecticut

Tightest cap: $40.4 million a year; Status quo: $24.6 million a year
Difference between status quo and tightest cap: $15.8 million annually and $204.8 million through 2030.
Connecticut invests most of its RGGI revenues in the Connecticut Energy Efficiency Fund, helping hundreds of thousands of households and thousands of businesses save money and energy through energy efficient technologies and energy audits. With more money from RGGI, those programs could save consumers even more.

Delaware

Tightest cap: $28.5 million a year; Status quo: $17.4 million a year
Difference: $11.1 million a year and $144.7 million through 2030.
RGGI supports programs like the Delaware Pathway to Green Schools, which helps schools optimize their energy use; home weatherization; and, heating bill assistance programs for low-income residents.

Maine

Tightest cap: $22.5 million a year; Status quo: $13.7 million a year
Difference: $8.8 million a year and $113.9 million through 2030.
RGGI-funded Efficiency Maine helps Mainers weatherize their homes, save fuel oil, and perform other efficiency upgrades.

Maryland

Tightest cap: $141.6 million a year; Status quo: $86.4 million a year
Difference: $55.2 million a year and $718 million through 2030.
RGGI underwrites the tremendously successful (and recently extended) EmPOWER Maryland efficiency programs, which have helped more than 14,000 low- and moderate-income households make energy efficiency upgrades.

Massachusetts

Tightest cap: $100.7 million a year; Status quo: $61.4 million a year
Difference: $39.3 million a year and $510.4 million through 2030.
Energy efficiency initiatives supported by RGGI, as well as other sources, have already delivered more than $691 million in lifetime energy bill savings to Massachusetts homes and businesses. Additional RGGI funds could help the Commonwealth grow programs like Green Communities, which helps cities and towns move toward clean energy, reduce energy costs, and strengthen local economies.

New Hampshire

Tightest cap: $32.5 million a year; Status quo: $19.9 million a year
Difference: $12.7 million annually and $165.0 million through 2030.
Additional RGGI funding could help more homeowners, businesses, and municipalities improve energy efficiency, saving hundreds of thousands of megawatt-hours and tens of millions of dollars.

New York

Tightest cap: $242.8 million a year; Status quo: $148.1 million a year
Difference: $94.7 million a year and $1.23 billion through 2030.
Increased RGGI revenues would provide significant funding for important programs, like the NY-Sun initiative, which promotes solar power; the Cleaner, Greener Communities program that furthers local and regional sustainability; Charge NY, which helps put more electric cars and trucks on New York’s roads; and Green Jobs – Green New York, which trains workers for clean energy jobs.

Rhode Island

Tightest cap: $10.0 million a year; Status quo: $6.1 million a year
Difference: $3.9 million a year and $50.9 million through 2030.
With these additional funds, Rhode Island could invest even more in energy efficiency programs and renewable upgrades at schools and farms.

Vermont

Tightest cap: $4.6 million a year; Status quo: $2.8 million a year
Difference: $1.8 million a year and $23.5 million through 2030.
Additional RGGI revenues can support residential and business efficiency programs that have already helped 4,523 households and 297 businesses and are expected to save more than $115 million in lifetime energy bills.

One thing to note: The revenue numbers in our analysis also represent money a state would forgo if it left RGGI. This is especially true in states like New Hampshire and Maine, which previously contemplated leaving, but wisely remained. Because New Hampshire and Maine are part of an integrated New England electricity market, and RGGI’s costs are reflected in that market’s wholesale electricity prices, if either state left the program, their consumers would still end up paying for RGGI’s costs but would no longer receive any of its many benefits. This would be especially true if the other states were to adopt a more ambitious cap, because the exiting state(s) would then pay more while forgoing even more in revenue. This reality, combined with the fact that RGGI’s benefits have far outweighed its costs, shows there is little to be gained from leaving now.

The bottom line: The more ambitious a carbon cap the RGGI states adopt now, the more money the states can use to support clean energy and enjoy the many benefits that come along with it. Now is the time for the RGGI states to seize this opportunity by committing to a carbon cap that is at least as ambitious as the tightest cap they’ve put on the table, to create a no-regrets policy that helps cost-effectively cut carbon pollution from power plants and support the clean energy solutions that the region’s residents desire.

Notes on RGGI Revenue Calculations:

1. Regional RGGI revenues were calculated by multiplying adjusted RGGI scenario cap levels by associated allowance prices in the National CO₂ program (NP) runs modeled by ICF International (available from RGGI, Inc. under June 27, 2017, meeting materials). ICF modeled allowance prices for years 2017, 2020, 2023, 2026, 2029, and 2031 only. Prices in other years were extrapolated linearly from the modeled results. Allowance revenues for 2017 were calculated as the sum of actual revenues from sales in the first two quarterly auctions of 2017 and remaining unsold allowances multiplied by ICF’s modeled prices.

2. State shares of allowances were assumed to remain constant at 2017 levels. Revenues for each state were calculated by multiplying the state’s share by regional revenues.

3. Revenues are in constant 2015 dollars. Historic RGGI revenues were converted to 2015 dollars using CPI conversion factors from Dr. Robert Sahr, Oregon State University.