This is a post on the latest Regional Greenhouse Gas Initiative (RGGI) report: Investment of RGGI Proceeds in 2015. It is another in a series of posts on RGGI that discusses how RGGI has fared so far (see posts labelled RGGI in the menu). Although the press release, RGGI Report: Investments Generating Consumer Benefits, describes the benefits of the program in glowing terms there are some unsettling numbers buried in the report.
I have been involved in the RGGI program process since its inception. Before retirement from a non-regulated generating company, I was actively analyzing air quality regulations that could affect company operations and was responsible for the emissions data used for compliance. After years dealing with RGGI I worry that whether due to boredom or frustration, that there is very little dissent to the program. It may be because, contrary to EPA and State agency rulemakings, RGGI does not respond to critical comments and rebut concerns raised by stakeholders. After years of making comments that disappear into a void, industry does not seem to think there is value to making comments. 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.
Summary of the Report Results
According to the Executive Summary in this report:
Proceeds from the Regional Greenhouse Gas Initiative (RGGI) have powered a major investment in the energy future of the New England and Mid-Atlantic states. This report reviews the benefits of programs funded in 2015 by RGGI investments, which have reduced harmful carbon dioxide (CO2) pollution while spurring local economic growth and job creation. The lifetime effects of these RGGI investments are projected to save 28 million MMBtu of fossil fuel energy and 9 million MWh of electricity, avoiding the release of 5.3 million short tons of carbon pollution.
As a whole, the RGGI states have reduced power sector CO2 pollution over 45 percent since 2005, while the region’s per-capita GDP has continued to grow. RGGI-funded programs also save consumers money and help support businesses. RGGI investments in 2015 are estimated to return $2.31 billion in lifetime energy bill savings to more than 161,000 households and 6,000 businesses which participated in programs funded by RGGI investments, and to 1.5 million households and over 37,000 businesses which received direct bill assistance.
The report describes how the RGGI investments were used 2015, a brief summary of cumulative investments, and then provides specific information for each state including an example of the programs.
The first step evaluating the claims of the RGGI states is to convert the pretty graphics to numbers. Chart 4 Cumulative RGGI Investments by Category is an example of the graphical data provided. In the table, All-Time RGGI Investments by Category %, I extracted the numbers shown for each analogous State graphic. In the State information sections the amount of money invested, received and diverted to the general fund for each state is listed. In the table, All-Time RGGI Investments by Category $Millions, I listed those numbers then multiplied them by the State category percentages to get total category amounts.
When you extract the numbers a less complimentary picture of the RGGI proceeds investments emerges. For starters, Chart 4 RGGI Investments by Category does not include the embarrassing raids of RGGI funds by New York and New Hampshire. In reality, the correct percentages are shown as the last row in the All-Time RGGI Investments by Category $Millions table. Similarly, the individual state category investments do not include the General Fund raids which would have shown that 10% of the New York “investments” went to political expediency.
There are some financial issues raised when the amounts are available for each state. Note the difference between the RGGI monies received and investments made and the column labelled “investments received %” which is simply investments divided by received. There is a huge range between the states. Vermont is the most efficient turning the money received into investments but six of the nine states all managed to invest at least 80% by the end of 2015. Delaware, Rhode Island and New York did much worse. It is probably no coincidence that the Administrative cost percentages for Delaware, Rhode Island and New York were among the highest four state percentages.
Administrative costs in general and the tithe to RGGI total over $100 million. Coupled with the general fund raids there is clearly a cautionary tale for carbon tax advocates who suggest that returning those taxes revenues to the public will minimize impacts. In my opinion, whenever there is a large pot of money available there will be politicians abusing their power to the disadvantage of the public.
The cost effectiveness of these investments is not presented in the report. The report notes that the lifetime effects of the 2015 RGGI investments are projected to save 28 million MMBtu of fossil fuel energy and 9 million MWh of electricity, avoiding the release of 5.3 million short tons of carbon pollution. In Chart 2 there is a note that states that the RGGI states invested $410,158,329 in 2015. The lifetime effects cost $15 per MMBtu, $46 per MWh of electricity and $77 per ton of carbon. I am unfamiliar with the benchmark costs per MMBtu and MWh for comparison with the RGGI effectiveness. However, the common justification for carbon reduction costs is the social cost of carbon. At a 3% discount rate, EPA says that the 2015 social cost of carbon was $36. RGGI investments are reducing carbon at twice the rate claimed to value the climate impact of rulemakings so their investments are not cost effective in this regard.
There is one other aspect of this report that needs to be addressed. The Executive Summary notes that “the RGGI states have reduced power sector CO2 pollution over 45 percent since 2005”. There is no better example of mis-direction in the reporting on the impact of RGGI in this document than this statement. The casual reader would certainly conclude that the RGGI program itself was responsible if not for the entire reduction at least a sizeable portion of the reduction. However, looking at CO2 reductions in the RGGI states that is not the case. In the first place, the program started in 2009. As shown in the EPA CAMD Annual CO2 Trend Data table the reduction from the last year before RGGI was instituted to 2015 was 31%, much less than the 45% claimed. (Note that my numbers don’t match the RGGI report which I believe is because I relied on the EPA Clean Air Markets Division database with the assumption that summing all the annual CO2 from the all programs that report CO2 was a good enough approximation. If RGGI only summed data from RGGI-affected units it could certainly account for the difference between numbers.)
However, it is even worse. The 20.5 million decrease is only a 16.1% reduction from the 2006-2008 baseline. This is consistent with my previous post on CO2 reductions due to RGGI which showed that RGGI is only responsible for between 24% and 5% of the observed reduction.
There is one final implication to the RGGI investments “success” with carbon reductions. The proposed program revisions released last month for RGGI call for an annual post-2021 cap reduction of 2,275,000 tons per year. In the Proceeds Investment Report Table 1: Benefits of 2015 RGGI Investments Program the annual benefits of 2015 investments lists an annual reduction of 298,410 tons. As shown in a white paper submitted to RGGI by the Environmental Energy Alliance of New York the affected electrical generation units have made most if not all of the cost effective reductions possible from their operations. As a result, future reductions will have to come from other investments but RGGI has no track record providing any assurance that RGGI investments will be sufficient to meet the targets proposed. For the record if a compliance entity has no allowances available to cover emissions their only compliance alternative is not run. If that happens then RGGI states will have a whole lot of explaining to do.