The Regional Greenhouse Gas Initiative (RGGI) is likely to generate over $149 million in fiscal year 2021-2022 for New York State investments to support comprehensive strategies that best achieve the RGGI greenhouse gas emissions reduction goals pursuant to 21 NYCRR Part 507. This post describes the comments I submitted for the New York RGGI Operating Plan Amendment for 2021.
I have been involved in the RGGI program process since its inception sometime in 2004. I blog about the details of the RGGI program because very few seem to want to provide any independent review 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.
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.
On December 16, 2020 a stakeholder advisory group meeting was held to provide an overview of the draft operating plan amendment. Meeting materials included the following:
The presentation provides an overview of the meeting. The introduction of the operating plan describes New York’s RGGI approach. Implementation responsibilities are shared by the New York Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA).
NYSERDA’s RGGI Operating Plan is reviewed and revised on an annual basis. The operating plan document represents the 2021 Operating Plan Amendment and provides program descriptions and funding levels for the April 2021-March 2024 timeframe. NYSERDA regulations include a provision to annually convene a group of stakeholders representing a broad array of energy and environmental interests. This group advises NYSERDA regarding strategies to best utilize RGGI funds. NYSERDA holds an open meeting of the stakeholder group each year, inviting input on how to achieve greater scale of implementation, advance activities that realize benefits in disadvantaged communities, expand private investments and partnerships, and address barriers to program success.
The draft Amendment explains that New York State invests RGGI proceeds to support comprehensive strategies that best achieve the RGGI greenhouse gas emissions reduction goals pursuant to 21 NYCRR Part 507. The programs in the portfolio of initiatives are designed to support the pursuit of the State’s greenhouse gas emissions reduction goals by:
- Deploying commercially available energy efficiency and renewable energy technologies;
- Building the State’s capacity for long-term carbon reduction;
- Empowering New York communities to reduce carbon pollution, and transition to cleaner energy;
- Stimulating entrepreneurship and growth of clean energy and carbon abatement companies in New York; and
- Creating innovative financing to increase adoption of clean energy and carbon abatement in the State.
In my comments , I evaluated the programs proposed for the draft Amendment. NYSERDA’s New York State Regional Greenhouse Gas Initiative-Funded Programs status reports were used to estimate the ability of these program to reduce CO2. The latest report, Semiannual Status Report through December 31, 2019 includes a summary of expected cumulative annual program benefits.
Operating Plan Table 1 lists those programs that are funded going forward in the draft Amendment and includes annual program benefits for existing programs. There are 18 proposed programs that have been allotted funds for the revised FY20-21 through FY23-24 budget years. I classified them into five categories and provided summaries of the programs themselves in 2021 RGGI Operating Plan Program Descriptions.
The programs in the first two categories are expected to produce emission reductions. Eight programs were funded before 2020 and have estimates of the cost to reduce CO2. They are allocated $416.2 million or 69% of the budgeted funds and, based on the NYSERDA report estimates, could reduce CO2 emissions just over 807,000 tons. This translates to a expected CO2 cost reduction efficiency of $516 per ton. Two new programs are similar to exiting programs and using the overall cost efficiency for the existing programs could reduce CO2 emissions another78,431 tons.
The next two categories are existing and new programs that do not directly reduce CO2 emissions. There is one existing program and four existing administrative line items totaling $76.8 million or 13% of the total that do not directly reduce CO2 emissions. It is disappointing that two new proposed programs totaling $14 million or 2% of the total that will also not directly reduce CO2 emissions. New York’s proportion of line items that do not directly reduce CO2 emissions is the highest of any RGGI state.
Finally, the draft amendment includes a program that will increase CO2 emissions. The draft Amendment proposes to allocate $52.8 million or 9% of the total budget to the ChargeNY program that will promote plug-in electric vehicle (PEV) adoption by consumers across New York.
Clearly the operating amendment funding represents a lot of money. The Operating Plan amendment for 2021 notes that:
“RGGI programs have and will continue, alongside other state programs, to contribute to economy-wide greenhouse gas emissions reductions and provide benefits to New York’s historically overburdened and underserved communities. NYSERDA’s CO2 Allowance Auction Program regulations reflect the provision of the Climate Leadership and Community Protection Act “that 40%, and no less than 35%, of the overall benefits from the investment of the [CO2 Allowance Auctions] proceeds” will be realized in disadvantaged communities.”
It is entirely appropriate that there should be an emphasis on environmental justice but I have concerns about the State’s approach.
Unfortunately, meeting that goal means even less emphasis on cost effectiveness. I noted in my comments that the CLCPA and the draft Amendment emphasize support to disadvantaged communities. Given that all other jurisdictions that have attempted to reduce GHG emissions have increased the cost of energy, it is likely that will be the case in New York too. Therefore, I think there are two priorities to reduce the regressive impact on those who can least afford those increased costs. Overall, the funding emphasis should be on the most cost-effective GHG reduction programs to lower overall costs. The exception to that emphasis are programs that directly reduce costs for anyone, regardless of location, who is living in energy poverty or has a disproportionate energy burden. I worry that the emphasis on disadvantaged communities will hurt energy paupers living outside of those communities, particularly those in rural areas.
A focus on reducing the energy burden of disadvantaged in general and in overburdened and underserved communities in particular is more appropriate than the state’s plans to fulfill a mandate for spending a particular amount in a particular way. In order to address the effect of climate change on dis-advantaged communities adapting and becoming more resilient to extreme weather rather than attempting to mitigate those impacts would also be more appropriate than funding wind and solar projects that have their own environmental consequences.
The draft Amendment budget total covering fiscal years 2020 to 2024 is over $600 million and is projected to reduce annual CO2 emissions 807,024 tons for a cost efficiency of $744 per ton reduced. Over 30% of the budget is apportioned to programs or line items that do not directly reduce CO2.
The cost reduction efficiency is $516 per ton for the programs that will directly reduce CO2. The recently adopted Value of Carbon Guidance recommended a 2020 value of carbon dioxide of $53-421 per ton, with a central value of $125 per ton; a 2020 value of methane of $1,527-6,578 per ton, with a central value of $2,782 per ton; and a value of nitrous oxide of $19,084-140,766 per ton, with a central value of $44,727 per ton. If we only consider the carbon dioxide values, the cost effectiveness exceeds the purported negative externality costs and that means that the RGGI operating plan programs do not meet this basic cost-benefit test.
Clearly the draft Amendments should put greater emphasis on investments with better cost effectiveness rates or develop programs to bring those costs down. Moreover, if the costs of the emission reduction programs exceed the purported negative externality costs then it suggests that it would be more appropriate to invest the proceeds elsewhere. Note that in the future the State is going to have to breakout expected methane and nitrous oxide emission reductions, if any, in order to reflect the full value of RGGI proceeds investments.
There is one final aspect of this that troubles me. RGGI is an electric sector emissions reduction program. New York State is already abusing the RGGI objectives with all the programs that produce no CO2 reductions. I am sure that a detailed review of the programs would uncover funding that should be covered by existing programs and not with RGGI funds. While it is understandable that RGGI funding will be used to meet the CLCPA dis-advantaged community mandates it will likely further dilute the effectiveness of future reductions. Funding the ChargeNY program that will promote plug-in electric vehicle (PEV) adoption by consumers across New York will actually increase CO2 emissions and I recommended that those funds be re-allocated elsewhere. The ultimate problem that the operating plan overlooks is at some point the sources affected by RGGI will be unable to lower their emissions. In order to meet the RGGI cap zero-emission generating and reductions in load funded by the RGGI proceeds will be needed. If all the money is distributed elsewhere problems will ensue.