Roger CaiazzaI have been involved in the RGGI program process since its inception. I blog about the details of the RGGI program because very few seem to want to provide any criticisms of the program. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.
Background
RGGI is a market-based program to reduce greenhouse gas emissions. It is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.
According to a RGGI website: “The RGGI states issue CO2 allowances which are distributed almost entirely through regional auctions, resulting in proceeds for reinvestment in strategic energy and consumer programs. Programs funded with RGGI investments have spanned a wide range of consumers, providing benefits and improvements to private homes, local businesses, multi-family housing, industrial facilities, community buildings, retail customers, and more.”
Released in October 2019, The Investment of RGGI Proceeds in 2017 report tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. According to the report, the lifetime benefits of RGGI investments made in 2017 include:
- 9 million MWh of electricity use avoided
- 6 million MMBtu of fossil fuel use avoided
- 3 million short tons of CO2 emissions avoided
The report’s press release quotes Ben Grumbles, Secretary of the Maryland Department of the Environment and Chair of the RGGI, Inc. Board of Directors: “The 2017 report shows why RGGI is a climate leader globally and nationally, not only cutting emissions in half but generating revenues to strengthen local economies and communities.”
Katie Dykes, Commissioner of the Connecticut Department of Energy and Environmental Protection and Vice Chair of the RGGI, Inc. Board of Directors said “RGGI states’ investments accelerate clean energy, reduce climate risk, and improve lives”.
Bruce Ho at the National Resources Defense Council blogged that the report “confirms that RGGI is a tremendous success story whose benefits continue to grow, and it shows how, in the absence of national leadership, states are forging ahead to protect our health, environment, and economy from the worst impacts of climate change.”
As I will show below, I disagree with these assertions of success. I believe the report mis-characterizes some of the numbers relative to the value of the program as an emission reduction approach. This is because they present “lifetime” benefits of the investments.
Everyone is talking about emissions reductions from some annual value, usually 1990. In order to determine effectiveness to meet those goals the only benefits that count are annual reductions due to RGGI. While it may be appropriate to document the lifetime dollar savings for energy efficiency, I am convinced that using lifetime values for any other parameter is bogus.
Emissions Reductions
In the first year of the RGGI program, 2009, the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont emitted 123,880,601 tons of CO2. This report was for 2017 and those states emitted 66,349,058 tons of CO2 so emissions the emission reduction was 46% which is close enough to half to accept the claim.
However, the real question is why did the emissions go down. I believe the real measure of RGGI emissions reductions success is the reduction due to the investments made with the auction proceeds.
The report does not provide the annual RGGI investment savings values accumulated since the beginning of the program. In order to make a comparison to the CO2 reduction goals we have to sum the values in the previous reports to provide that information.
The table Accumulated Annual Regional Greenhouse Gas Initiative Benefits lists the annual avoided CO2 emissions generated by the RGGI investments from three previous reports as well as the lifetime values. The total of the annual reductions is 2,818,775 tons while the difference between total annual 2009 and 2017 emissions is 57,531,543 tons. The RGGI investments are only directly responsible for 5% of the total observed reductions!
Cost Efficiency
In order to argue that RGGI emission reduction programs are a good investment relative to the expected societal cost of CO2 emissions the Obama Administration developed a value for the social cost of carbon. This parameter was developed to estimate the cost of the long-term (that is to say hundreds of years) damage done by a ton of carbon dioxide (CO2) emitted today. This dollar figure also represents the benefit of a CO2 reduction.
I have posted on some of the issues with this parameter but for the purposes of this post you need to know that the values range widely depending on assumptions. For example, if you use a discount rate of 3% and consider global benefits like the Obama-era Environmental Protection Agency (EPA) did then the 2020 SCC value is $50.
On the other hand, the current Administration EPA SCC value for SCC is $7 for a 3% discount rate and $2 for a 5% discount rate that represents only benefits to the United States. The Institute for Policy Integrity report “Expert Consensus on the Economics of Climate Change” projected a higher 2020 SCC value of ~$140 based on a survey of experts. A 2015 paper in Nature Climate Change “Temperature impacts on economic growth warrant stringent mitigation policy” suggest that the SCC value should be $220.
The Accumulated Annual Regional Greenhouse Gas Initiative Benefits table lists the data needed to calculate the RGGI CO2 reduction cost per ton. From the start of the program in 2009 through 2017 RGGI has invested $2,527,635,414 and reduced CO2 2,818775 tons annually. The result, $897 per ton reduced, is four times greater than the highest SCC value and two orders of magnitude greater than the current EPA SCC value for United States benefits.
Conclusion
The fact is that, for policy purposes, the annual reductions from RGGI have to be considered because that is the “apples to apples” comparison. I have to believe the reason why the RGGI investment reports no longer report the accumulated annual benefits and only report the lifetime benefits is because the values appropriate for determining the effectiveness of this program as a control program reflect so poorly on the program.
Reductions of CO2 directly attributable to investments made from the auction proceeds only total 5% of the observed CO2 reductions from 2009 to 2017. Those poor results combined with $2.5 billion investments costs result in a nearly $900 cost per ton of CO2 reduced. That value far exceeds the social cost of carbon value contrived to prove the value of CO2 reductions.
