RGGI Is A Failure, All Hat and No Cattle

Normally I publish an annual analysis of the Regional Greenhouse Gas Initiative (RGGI) annual Investments of Proceeds update soon after the release of the report but I was busy preparing comments on the New York Climate Leadership & Community Protection Act so this update is very late. This is the fifth installment of my annual updates on the RGGI proceeds report.  This post compares the claims about the success of the investments against reality.  As in my previous posts I have found that the claims that RGGI successfully provides substantive emission reductions are unfounded.

I 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 (Factsheet). It has been 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 since 2008.  New Jersey was in at the beginning, dropped out for years, and re-joined in 2020. Virginia joined in 2021 and Pennsylvania has joined but is not actively participating in auctions due to on-going litigation.

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.”

The latest investment proceeds update was released in May 2022.   The Investment of RGGI Proceeds in 2020 report tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. According to the report, the RGGI states invested $196 million in 2020 auction proceeds and expect lifetime benefits of the RGGI investments made in 2020 to include $1.9 billion in lifetime energy bill savings and 6.6 million short tons of CO₂ emissions avoided.  The report breaks down the investment categories as follows:

• Energy efficiency makes up 35% of 2020 RGGI investments and 53% of cumulative investments. Programs funded by these investments in 2020 are expected to return about $1.2 billion in lifetime energy bill savings to more than 56,000 participating households and over 700 businesses in the region and avoid the release of 4.6 million short tons of CO2.
• Clean and renewable energy makes up 18% of 2020 RGGI investments and 14% of cumulative investments. RGGI investments in these technologies in 2020 are expected to return over $600 million in lifetime energy bill savings and avoid the release of more than 1.7 million short tons of CO2.
• Beneficial electrification makes up 11% of 2020 RGGI investments and 3% of cumulative investments. RGGI investments in beneficial electrification in 2020 are expected to avoid the release of 177,000 short tons of CO2 and return nearly $90 million in lifetime savings.
• Greenhouse gas abatement makes up 5% of 2020 RGGI investments and 8% of cumulative investments. RGGI investments in greenhouse gas (GHG) abatement in 2020 are expected to avoid the release of more than 160,000 short tons of CO2 and to return over $51 million in lifetime savings.
• Direct bill assistance makes up 19% of 2020 RGGI investments and 16% of cumulative investments. Direct bill assistance programs funded through RGGI in 2020 have returned over $37 million in credits or assistance to consumers.

There was a change in these categories in this report relative to previous reports.  This is the first version of this report which includes beneficial electrification as its own investment category.  In previous versions of this report, investments in beneficial electrification programs were included within the other major investment categories.

Emissions Reductions

In my previous articles on the Proceeds reports, I have argued that RGGI mis-leads readers when they claim that the RGGI states have reduced power sector CO2 pollution over 50% since 2009. In the following table, I list the 9-state RGGI emissions and percentage reduction from a three-year baseline before the program started in 2009.

I have argued that the implication in the 50% claim is that the RGGI program were primarily responsible for the observed reduction even as the economy grew (Figure 1 from the report).

I believe that their insinuation that RGGI was primarily responsible for the emission reductions is wrong.  The following table lists the emissions by fuel types for these nine RGGI states.  It is obvious that the primary cause of the emission reductions was the fuel switch from coal and residual oil to natural gas. 

This fuel switch occurred because it was economic to do so.  I believe that RGGI had very little to do with these fuel switches because fuel costs are the biggest driver for operational costs and the cost adder of the RGGI carbon price was too small to drive the use of natural gas over coal and oil.

I believe that the appropriate measure of RGGI emissions reductions is the decrease due to the investments made with the auction proceeds so I compared the annual reductions made by RGGI investments.  The biggest flaw in the RGGI report is that it does not provide the annual RGGI investment CO2 reduction values accumulated since the beginning of the program.  In order to make a comparison to the CO2 reduction goals I had to sum the values in the previous reports to provide that information.

The following table lists the annual avoided CO2 emissions generated by the RGGI investments from previous reports.  The accumulated total of the annual reductions from RGGI investments is 3,658,696 tons while the difference between the three-year baseline of 2006-2008 and 2020 emissions is 65,079,196 tons.  The RGGI investments are only directly responsible for 5.6% of the total observed annual reductions over the baseline to 2020 timeframe!

Although proponents claim that this program has been an unqualified success I disagree.  Based on the numbers there are some important caveats to the simplistic comparison of before and after emissions.   The numbers in the previous paragraph show that emission reductions from direct RGGI investments were only responsible for 5.6% of the observed reductions.   In a detailed article I showed that fuel switching was the most effective driver of emissions reductions since the inception of RGGI and responsible for most of the reductions.

Benefits

Table 1 from the report lists two benefits of 2020 RGGI Investments: emission reductions and energy bill savings.  Energy bill savings derive from investments in energy efficiency savings and other efforts that directly reduce costs to consumers.  These energy saving benefits typically account for total savings over the lifetime of the project investment.  RGGI does the same thing with the CO2 emission reductions but I think that is misleading because the emission reduction metric is annual emissions and not lifetime emissions.

Emission Reduction Cost Efficiency

There is another aspect of this report that is mis-leading and after arguing with RGGI and New York State about the issue, I have concluded that the deception is intentional.

In particular, I believe that a primary concern for GHG emission reduction policies is the cost effectiveness of the policies and I have argued that this report should provide the information necessary to determine a cost per ton reduced value for control programs for comparison to the social cost of carbon.  If the societal benefits represented by the social cost of carbon for GHG emission reductions are greater than the control costs for those reductions, then there is value in making the reductions.  If not, then the control programs are not effective.

Recall that RGGI provides lifetime CO2 emission reductions but I think that is misleading because it suggests that the emission reduction cost efficiency of the investments is the total investments divided by the lifetime benefits of those benefits.   For example, dividing the 2020 investments of $196 million by the lifetime avoided CO2 emissions yields a value of $29.  The Biden administration is re-evaluating the social cost of carbon values but for the time being has announced an initial estimate of $51 per ton and this suggests that RGGI investments are cost effective relative to the social cost of carbon.

However, the social cost of carbon value is calculated for an annual reduction of one ton.  In particular, the social cost of carbon is an estimate, in dollars, of the present discounted value of the benefits of reducing annual emissions by a metric ton. (Note that my numbers do not include the relatively small conversion to metric tons for a proper comparison to the social cost of carbon.) In order to calculate the CO2 emissions reduction efficiency consistent with the social cost of carbon, the proper estimate is the total investments since the start of the program divided by sum of the annual emission reductions.  The problem is that the RGGI reports do not provide that total and instead only provide the sum of the annual lifetime CO2 avoided emissions.

The Proceeds reports always include a caveat that the states continually refine their estimates and update their methodologies, but the annual numbers are not updated to reflect those changes.  Ideally to get the best estimate of the annual numbers the RGGI states should provide the revised annual numbers for each year of the program. Because that is not the case, I have had to rely on the original annual numbers provided in previous editions of the report.

As noted previously, I sum the values in the previous reports to provide that information as shown in the Accumulated Annual Regional Greenhouse Gas Initiative Benefits Through 2020 table.  The accumulated total of the annual reductions from RGGI investments is 3,658,696 tons through December 31, 2020. The sum of the RGGI investments in the previous table is $2,991,215,917 over that time frame.  The appropriate comparison to the social cost of carbon is $2.991 billion divided by 3,658,696 tons or $818 per ton reduced.

Conclusion

The 2020 RGGI Investment Proceeds report tries to put a positive spin on the poor performance of RGGI auction proceeds reducing CO2.  The alleged purpose of the program is to reduce CO2 from the electric generating sector to alleviate impacts of climate change.  Since the beginning of the RGGI program RGGI funded control programs have been responsible for 5.6% of the observed reductions.  The report does not directly provide the numbers necessary to calculate that estimate which I have come to believe is deliberate.  When the sum of the RGGI investments is divided by the sum of the annual emission reductions the CO2 emission reduction efficiency is $818 per ton of CO2 reduced.  I conclude that RGGI is not an effective CO2 emission reduction program.