Investment of RGGI Proceeds in 2016

This is a post on the Regional Greenhouse Gas Initiative (RGGI) report: The Investment of RGGI Proceeds in 2016 . It is another in a series of posts on RGGI that discusses how RGGI has fared so far and a follow up to the 2015 investments proceeds report post. Although the press release, RGGI Report: 2016 RGGI Investments Generate Environmental and Economic Benefits, describes the benefits of the program in glowing terms the fact is that the reported benefits for these investments fall far short of what is necessary to meet the RGGI reduction goals.

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

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 2016 by $436.4 million in 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 30.4 million MMBtu of fossil fuel energy and 7.0 million MWh of electricity, avoiding the release of 6.4 million short tons of carbon pollution.

As a whole, the RGGI states have reduced power sector CO2 pollution over 50 percent since 2005, while the region’s gross domestic product has continued to grow. RGGI-funded programs also save consumers money and help support businesses. RGGI investments in 2016 are estimated to return $1.7 billion in lifetime energy bill savings to more than 182,000 households and 2,680 businesses which participated in programs funded by RGGI investments, and to more than 800,000 households and 100,000 businesses which received direct bill assistance.

The report describes how the RGGI investments were used 2016, a brief summary of cumulative investments, and then provides specific information for each state including an example of the programs.

Analysis

The claimed 2016 benefits are comparable to the 2015 report. This report says that $436.4 million in RGGI investments funded programs in 2016 as compared to $410.2 million in 2015. The lifetime effects of the 2016 RGGI investments are projected to save 30.4 million MMBtu of fossil fuel energy and 7.0 million MWh of electricity, avoiding the release of 6.4 million short tons of carbon pollution. 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 both Proceeds reports (2015 and 2016), Table 1 Benefits of RGGI Investments list the annual and lifetime benefits of the investments. Table 1 Comparison of 2015 and 2016 Proceeds Funding and Benefits lists the investment totals and the reported benefits for energy savings, electrical use and CO2 emissions reductions. I have also included the investment efficiency or $ per improvement.

Of particular interest is the cost per ton of CO2 reduced. The life time numbers ($64 per ton in 2015 and $82 per ton in 2016) are about twice the Obama era Social Cost of Carbon value of $36 for 2015 using a 3% discount rate. However, I don’t think using the lifetime values is appropriate.

The RGGI model rule updates agreed to by the RGGI States in December 2017 call for an annual post-2021 cap reduction of 2,275,000 tons per year. My question is how will the RGGI investments help meet that goal. In order to determine that you have to use the annual benefits of the investments. When you do look at the annual projections the results are pathetic. RGGI claims that its investments reduced CO2 emissions by 298,410 tons at a rate of $1,375 per ton in 2015 and 382,266 tons at a rate of $1,142 per ton in 2016. The 2016 investments fall short of the post 2021 cap reduction requirement by 1,892,734 tons.

How are the affected sources supposed to meet this reduction target? Although there have been significant reductions since the inception of the RGGI program most of those should be ascribed to economic fuel switching away from coal and oil to natural gas. 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 of the cost effective reductions possible from their operations. As a result, future reductions will have to come from other investments such as RGGI. If the RGGI investments are the only way and the 2016 cost efficiency ($ per ton of CO2 reduced) is not improved then RGGI investments would have to be over $2.161 billion every year.

The RGGI model rule update caps emissions in 2021 at 75,147,784 tons. Trading program theory states that when there is allowance scarcity the price will rise and so you could expect that more money will be available for investments. The RGGI allowance price necessary to provide $2.161 billion for 2021 would be $28.75. There is a problem with this however. The RGGI model rule cost containment reserve trigger price (included to insure that allowance prices don’t go to high) is $13.00 in 2021. As a result, they cannot go that high.

The good news relative to this potential problem is that 2017 RGGI emissions were only 66,235,513 tons, well below the 2021 target. The question is why was there a 21.8% drop in emissions relative to 2015? If it was primarily weather related then emissions could go back up. Only time will tell but the point is that at least the emissions are close to the cap targets.

Conclusion

Ultimately these findings illuminate my problem with CO2 emissions trading programs. My particular concern is affected source compliance. Because there is no cost-effective add-on control system available for CO2 reductions, an affected source basically has to buy enough allowances to cover its planned operations. RGGI is hell-bent on reducing its caps despite the fact that its investments for emissions reductions fall far short of what the emissions reductions it has promulgated. There are many complications beyond the scope of this post that determine allowance availability but I believe that by 2025 the compliance entities in RGGI are going to have to pay exorbitant prices to get allowances that they need to operate and soon thereafter there won’t be enough at any cost. At that point, they will have no choice but to shut down.

Author: rogercaiazza

I am a meteorologist (BS and MS degrees), was certified as a consulting meteorologist and have worked in the air quality industry for over 40 years. I author two blogs. Environmental staff in any industry have to be pragmatic balancing risks and benefits and (https://pragmaticenvironmentalistofnewyork.blog/) reflects that outlook. The second blog addresses the New York State Reforming the Energy Vision initiative (https://reformingtheenergyvisioninconvenienttruths.wordpress.com). Any of my comments on the web or posts on my blogs are my opinion only. In no way do they reflect the position of any of my past employers or any company I was associated with.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s