RGGI Response to Investment of RGGI Proceeds 2018 Letter

On August 3, 2020 I submitted a letter to the Regional Greenhouse Gas Initiative describing the issues raised in my article Investment of RGGI Proceeds Report for 2018.  This post documents their response, my thoughts about that response, my follow-up letter and their final response.  I really appreciate the fact that RGGI responded to my letters.

I have been involved in the RGGI program process since discussion started on it sometime in early 2004.  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.”  Note that New Jersey has re-joined RGGI and Virginia will be joining in 2021.

The latest update was released on July 29, 2020.   The Investment of RGGI Proceeds in 2018 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 2018 include:

• • • $2 billion in lifetime energy bill savings
    • 4.6 million short tons of CO₂ emissions avoided

RGGI notes that “The largest share of the investments was directed to energy efficiency, with 38% of the 2018 total. Greenhouse gas abatement programs, which include carbon-reducing beneficial electrification projects, received 20% of 2018 investments. 19% of investments were directed to clean and renewable energy programs, with direct bill assistance receiving 16%.”

The original letter was sent on August 3 and received a prompt reply on August 10 as documented in RGGI August 10 Response to Investment Proceeds Letter from Caiazza.  My thoughts on the response are shown below.  Caiazza – RGGI correspondence August 21 2020 documents my follow-up letter and the response received.  I appreciate Fred Hill responding to these letters.

Issues Raised in August 3, 2020 Letter

In the following I will summarize the concerns raised in my letter, followed by the RGGI bullet response and with my thoughts in italics.  The RGGI reply is in the bullets and my response italicized below.

I brought up the claim that “As a whole, the RGGI states have reduced power sector CO2 pollution over 50% since 2005, while the region’s gross domestic product has continued to grow”. The first year of the RGGI program was 2009, when the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont emitted 108,487,823 tons of CO2.  The report’s comparison starting date was 2005 when the emissions from those nine states equaled 147,032,069 tons.  The 50% reduction is attributed to the RGGI program but the reduction between 2005 and the start of the program was 26% so clearly something else has been going on.

• • While the report spotlights the impact of RGGI investments on reducing carbon emissions, these investments are part of a broader story about the leadership of the RGGI participating states in showing it is possible to grow the economy while reducing emissions.
    • • The ultimate problem supposedly is climate change caused by anthropogenic greenhouse gas emissions. Therefore, I believe that the report should include documentation describing the efficacy of the program to reduce carbon emissions.

• • Concentrating on only the emissions reductions attributed directly to RGGI proceeds investments would be ignoring the effects of the RGGI regional cap and the market signal of a CO2 allowance price, as well as other policies in each RGGI state.
    • • There is a major disconnect between the theory of RGGI described here and its practical effect on affected sources. I believe that the fuel switch from coal and oil to natural gas occurred because natural gas was the cheaper fuel and is the primary driver of the observed CO2 emission reductions.  This had very little to do with the RGGI market signal because the CO2 allowance cost adder to the plant’s operating costs was relatively small.   The affected sources treat the RGGI cost as tax and have not done anything else to meet the cap requirements. There is no evidence that any affected source in RGGI installed add-on controls to reduce their CO2 emissions.  The only other option at a power plant is to become more efficient and burn less fuel.  However, because fuel costs are the biggest driver for operational costs that means efficiency projects to reduce fuel use means have always been considered by these sources.   Because the market signal from the additional cost of the RGGI carbon price was small I do not believe that any affected source installed an efficiency project as part of its RGGI compliance strategy. 
  • The emissions reductions achieved in the RGGI states from 2005 to 2009 can be attributed to a variety of factors, as examined in a 2010 draft white paper available on the RGGI website.
    • • The referenced white paper states:

The analysis concludes that three categories of factors are the primary drivers of the decreased CO2 emissions over this period: 1) lower electricity load (due to weather; energy efficiency programs and customer-sited generation; and the economy); 2) fuel-switching from petroleum and coal to natural gas (due to relatively low natural gas prices); and 3) changes in available capacity mix (due to increased nuclear capacity availability and uprates; reduced available coal capacity; increased wind capacity; and increased use of hydro capacity).

• • • • In your report describing the results of RGGI I believe that the statement in question, “the RGGI states have reduced power sector CO2 pollution over 50% since 2005” suggests that RGGI was the cause of the 50% reduction and the white paper clearly indicates that from 2005 to 2009 it was not.
      • The true value of RGGI would be clarified if the reductions since the start of RGGI were compared to a period before the program started. My preference is a three-year baseline of 2006 to 2008 data.

I noted that the document and press release both state:

In 2018, $248 million in RGGI proceeds were invested in programs including energy efficiency, clean and renewable energy, greenhouse gas abatement, and direct bill assistance. Over their lifetime, these 2018 investments are projected to provide participating households and businesses with $2 billion in energy bill savings and avoid the emission of 4.6 million short tons of CO2.

While it is appropriate to document the lifetime energy bill savings from RGGI investments, it is mis-leading to provide the lifetime avoided emissions value.

• • Assessing program effectiveness by totaling the “annual benefits” in prior reports would be discounting the fact that most investments continue to accrue benefits after the year in which the investment was made. (For example, a weatherization investment completed in 2015 would continue to result in avoided CO2 emissions not only in 2015 but in years to come.) The report does not include a figure for “cumulative annual emissions reduced” because taking the sum of in-year reductions in each annual report would not be an accurate figure for the lifetime CO2 reductions resulting from investments.
    • • As I noted reporting lifetime energy bill savings is appropriate but the RGGI cap is an annual number. In order to assess the efficacy of the investments relative to meeting the cap I believe the RGGI investment proceeds report should also report cumulative RGGI investments and cumulative annual emissions reduced.

Until this report the Benefits of RGGI Investments table listed the annual and life-time benefits of that year’s investments for eight categories.  The 2018 report only lists the benefits for two categories: energy bill savings and total CO2 avoided.  Is there a reason for the change?

• • In terms of the change in the report in 2018, CO2 emissions avoided and energy bill savings are the metrics that are relevant across all categories of program investment. Additional metrics associated with more detailed categories continue to be reported for relevant program categories. The reason for this change is to better tailor the metrics for relevancy. (For example, “avoided MWh” would not be a relevant metric for a program funding electric vehicles.)
    • • Now I that know the rationale I understand why the change was made.

Although from your perspective, the annual investment proceeds report is to inform the public about the investments and benefits I think that RGGI is a pollution control initiative and this report should also provide sufficient information to determine its effectiveness as a control program

• • Since 2015, the reports have focused on the investments made in a single year rather than the cumulative investments. This type of reporting is more accurate given that many states continue to refine and evolve their reporting methodologies over time. As the report notes, “All-time benefits metrics may be best understood as a general indication of the cumulative benefits of RGGI-funded investments since the program’s inception. Table 6 shows that the track record from all RGGI investments includes benefits on the order of billions of dollars in customer bill savings, and tens of millions of short tons of CO2 avoided. Note that as the program’s track record grows longer, all-time numbers may include changes in states’ methodologies from year to year.”
    • • From my perspective, RGGI is a pollution control initiative and the report should provide sufficient information to determine its effectiveness in that regard. If the states have refined their estimates and reporting methodologies such that their annual investment and reduction estimates have improved then the historical data should be updated to provide the best estimate of the program investments relative to the RGGI cap.  The cap is an annual number so lifetime numbers are irrelevant.

I conclude that in order to accurately reflect the value of RGGI as a GHG emissions reduction program that this emissions proceeds report should provide the cumulative annual reductions from RGGI because that is the “apples to apples” comparison to policy emission targets.

• • Please note that the scope of the Investment of RGGI Proceeds report is to provide information to the public about how participating states invest RGGI proceeds and the benefits from those investments. Investment of RGGI proceeds is one of the policy mechanisms available to achieve participating states’ carbon reduction or other policy goals.
    • • Even though I think I understand the perceived purpose of the report now the question becomes where should the cumulative annual investment and reductions numbers needed to calculate cost effectiveness numbers be presented? The ultimate goal of RGGI is to provide a template so other states will join the program and that parameter is needed to justify participation.

Conclusion

My reply letter to the RGGI response focused on the need to include cumulative annual investment and reduction estimates so that the cost effectiveness of the program’s investments can be determined. Despite RGGI’s intent in the report to inform the public about the investments and benefits ultimately this is still is a pollution control program and this report should provide sufficient information to calculated its effectiveness in that regard.  The Proceeds report always include a caveat that the states refine their estimates update their methodologies, but the annual numbers are not updated.  Therefore, in order to get the best estimate of the cumulative value RGGI should update the annual numbers and provide the cumulative total in future editions.

I am very appreciative that Fred Hill responded to my letters.  The promise to pass my comments on to the RGGI states for consideration is a first step.  It remains to be seen whether the states will provide this information in the future.