On June 17, 2019 New Jersey rejoined the Regional Greenhouse Gas Initiative (RGGI). If there ever was any doubt that participation in RGGI is primarily politically motivated this should clear that up. It is another in a series of posts on RGGI that discusses how RGGI has fared so far. In particular this post compares New Jersey’s issues with RGGI under the previous administration and notes that with a new administration the state joined without getting them resolved.
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. Because RGGI does not respond to critical comments and rebut concerns raised by stakeholders critical stakeholder comments have dropped off significantly. Nonetheless I have commented on the rules personally if for no other reason to be on the record. In this instance the New Jersey Department of Environmental Protection submitted comments for the record that should be publicized. 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.
New Jersey Comments on the 2017 RGGI Program Review
The program review proposed to amend and extend a revised RGGI program out to 2030, with a goal of cutting CO2 emissions an additional 30% between 2020 and 2031. The New Jersey comments pointed out that the cost of RGGI allowances under the new proposal may rise by a factor of 8 by 2030. Nothing changed when the plan was implemented,
Their review suggested that “the proposed RGGI program could result in significant increases in electricity rates for any participating RGGI state”. Quite rightly they pointed out that while energy efficiency (EE) can reduce the total amount spent on electricity and can offset increases in electric rates, there is a point where returns on EE investments diminish. RGGI never acknowledged that and they simply suggested that as more money is spent on EE, the savings will continue to rise proportionately.
The New Jersey comments asked RGGI to acknowledge and evaluate the impacts on individuals and businesses that will see increases in energy rates and little to no reductions in energy use. For those who have already invested in EE there is little opportunity for further reductions and they will have to bear the full increase in cost. This comment was ignored.
New Jersey noted that participating RGGI states already have some of the highest retail electricity rates in the nation, with six of the nine states in the top ten, and increased energy costs should be of major concern. If increased electric rates drive business and industry to other states or nations with less costly and more polluting electric power production, net increases in CO2 emissions would result, to the detriment of the environment as well as the local RGGI economies that have suffered the loss of business and industry. The proposed 8-fold increase in RGGI allowance costs will increase the difference in electric rates between RGGI and PJM states, causing a greater shift of electric production to PJM states. This is known as “Leakage”. RGGI did not address this in the final rule and this may result in a net global increase in CO2 emissions, even if the participating RGGI states reduce their own mass emissions.
These NJ comments show the downside if New Jersey were to join RGGI.
NJ spends the 2nd highest amount in the USA (after CA) and highest in the eastern USA on RPS compliance in 2016 (7.5% RPS costs vs 1.6% average for other states with RPS) with Massachusetts close behind. (Source: U.S. Renewables Portfolio Standards, 2017 Annual Status Report, Lawrence Berkeley National Laboratory, July 2017). The 7.5 % of NJ electric bill that is dedicated to renewable energy and energy efficiency is high relative to the average state in the USA. Not further increasing the electric rates significantly is important in states like NJ that already have major EE and RE programs.
The New Jersey Board of Public Utility’s (BPU’s) energy efficiency program and Renewable Portfolio Standard (RPS) are well funded and effective. If NJ funded energy efficiency with RGGI allowance revenue, this would result in greater increases in the cost of wholesale power since the RGGI allowance value would be bid into the electricity markets. For every $1 in allowance revenue from RGGI NJ ratepayers would pay up to about $2 in increased electric costs. For every $1 invested in energy efficiency and renewable energy in NJ, the NJ ratepayers now pay about $1.
The societal benefit charge (SBC) which is used to fund energy efficiency in New Jersey, is placed on the retail use of electricity, not the wholesale production of electricity. Therefore, it has no direct effect on the wholesale price of electricity and does not cause a shift of electric production from clean NGCC units in NJ to much higher emitting coal units in non RGGI PJM states. While increasing retail electric rates, the SBC can also indirectly reduce wholesale electric rates because the energy efficiency financed by the SBC reduces the demand for electricity. That reduction in the demand for electricity reduces emissions of air pollutants. The reduction in wholesale prices of electricity may offset the price of the SBC.
The use of all SBC funds in NJ contributes to NJ’s economy. SBC funds do not flow to other states. Revenue amounts raised by the SBC and the effect on electric rates are predictable and certain compared to the revenue raised by selling RGGI allowances at an uncertain auction price. A dollar of ratepayer expenditure under the SBC results in a dollar of benefit to the NJ ratepayers. About half the ratepayer increase caused by RGGI would benefit the nuclear power industry.
In my opinion the New Jersey comments correctly identified several issues that were ignored when the final rule was promulgated. Moreover they also included comments that were good reasons for New Jersey to not join RGGI. As soon as there was a new administration these concerns were dismissed. Not because they were addressed or new analyses showed the problems were irrelevant. They were dismissed because they were inconvenient.