Investment of RGGI Proceeds Report for 2019

This is the fourth installment of my annual updates on the Regional Greenhouse Gas Initiative (RGGI) annual Investments of Proceeds update.  This post compares the claims about the success of the investments against reality.  As in my previous posts I have found that the claims that RGGI is a success are unfounded.

I have been involved in the RGGI program process since its inception.  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 has been 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 since 2008.  New Jersey was in at the beginning dropped out for years and re-joined in 2020. Virginia joined in 2021.  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.” 

The latest update was released on June 28, 2021.   The Investment of RGGI Proceeds in 2019 report tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. According to the report, the RGGI states invested $217 million in auction proceeds and expect  lifetime benefits of the RGGI investments made in 2019 to include $1.3 billion in lifetime energy bill savings and 2.5 million short tons of CO₂ emissions avoided.  The report notes that energy efficiency investments made up 40% of the 2019 total. Greenhouse gas abatement programs, which include carbon-reducing beneficial electrification projects, received 15% of 2019 investments and 18% of investments were directed to clean and renewable energy programs, with direct bill assistance receiving 19%.  Not directly mentioned but available in the data are the estimates that administrative costs took up 6% of the proceeds and RGGI Inc a little over 1%.

Emissions Reductions

In my article on the 2018 proceeds report, I argued that RGGI mis-leads readers when they claim that the RGGI states have reduced power sector CO2 pollution over 50% since 2005.  I argued that the implication in the 50% claim is that the RGGI program had something to do with the observed reduction but the reduction between 2005 and the start of the program was 26% so clearly something else has been going on. 

The important question is why did the emissions go down.  I believe that the real measure of RGGI emissions reductions success is the reduction due to the investments made with the auction proceeds so I compared the annual reductions made by RGGI investments.  The biggest flaw in this report is that it

does not provide the annual RGGI investment CO2 reduction values accumulated since the beginning of the program.  In order to make a comparison to the CO2 reduction goals I had to sum the values in the previous reports to provide that information.  The table Accumulated Annual Regional Greenhouse Gas Initiative Benefits Through 2019 lists the annual avoided CO2 emissions generated by the RGGI investments from five previous reports.  The accumulated total of the annual reductions from RGGI investments is 3,259,203 tons while the difference between total annual 2005 and 2019 emissions is 83,494,425 tons.  The RGGI investments are only directly responsible for 3.9% of the total observed annual reductions over the 2005 to 2019 timeframe!  I believe that the average of the three years before the program started is a better baseline and using that metric there was a 63,756,767 annual ton reduction (50%) to 2019 and RGGI investments accounted for 5%.  Better but still pathetic.

Although proponents claim that this program has been an unqualified success I disagree.  Based on the numbers there are some important caveats to the simplistic comparison of before and after emissions.   The numbers in the previous paragraph show that emission reductions from direct RGGI investments were only responsible for 5% of the observed reductions.   In a detailed article I showed that fuel switching was the most effective driver of emissions reductions since the inception of RGGI and responsible for most of the reductions.

Cost Efficiency

There is another aspect of this report that is mis-leading and after arguing with RGGI and New York State about the issue, I have concluded that the deception is intentional.  In particular, I believe that a primary concern for GHG emission reduction policies is the cost effectiveness of the policies and I have argued that this report should provide the information necessary to determine a cost per ton reduced value for control programs for comparison to the social cost of carbon.  If the societal benefits represented by the social cost of carbon for GHG emission reductions are greater than the control costs for those reductions, then there is value in making the reductions.  If not, then the control programs are not effective.

In order to compare the cost effectiveness of the RGGI investment proceeds to the social cost of carbon, annual CO2 reductions must be used because the social cost of carbon is an estimate, in dollars, of the present discounted value of the benefits of reducing annual emissions by a metric ton. (note that my numbers do not include the relatively small conversion to metric tons for a proper comparison to the social cost of carbon.) The Proceeds report always includes a caveat that the states continually refine their estimates and update their methodologies, but the annual numbers are not updated to reflect those changes.  Ideally to get the best estimate of the annual numbers the RGGI states should provide the revised annual numbers for each year of the program.

Because that is not the case, I have had to rely on the original annual numbers provided in previous editions of the report.  As noted previously, I had to sum the values in the previous reports to provide that information as shown in the table Accumulated Annual Regional Greenhouse Gas Initiative Benefits Through 2019.  The accumulated total of the annual reductions from RGGI investments is 3,259,203 tons through December 31, 2019. According to Chart 5 in the Proceeds report, RGGI investments total $2.796 billion over that time frame.  The appropriate comparison to the social cost of carbon is $2.796 billion divided by 3,259,203 tons or $858 per ton reduced. 

The Proceeds reports only provide the avoided tons of CO2 over the lifetime of the RGGI investment funded control programs.  Dividing the $2.796 billion by the lifetime avoided CO2 emissions yields a value of $65.  The Biden administration is re-evaluating the social cost of carbon values but for the time being has announced an initial estimate of $51 per ton which is close to the lifetime avoided value. 

Conclusion

The 2019 RGGI Investment Proceeds report tries to put a positive spin on the poor performance of RGGI auction proceeds actually reducing CO2.  The alleged purpose of the program is to reduce CO2 from the electric generating sector to alleviate impacts of climate change.  Since the beginning of the RGGI program RGGI funded control programs have been responsible for 5% of the observed reductions.  The report does not directly provide the numbers necessary to calculate that estimate which I have come to believe is deliberate.

Another example of deliberate obfuscation is the publication of lifetime avoided emissions but not the cumulative annual emission reductions for RGGI-funded control programs.  The value of GHG emission reduction programs is “proven” if the cost per ton is less than the social cost of carbon.  However, the social cost of carbon value is for an annual reduction of one ton.  When the report only publishes the lifetime avoided emissions it is easy to assume that the total investments divided by the lifetime avoided emissions provides a value that can be compared to the social cost of carbon especially when no caveat is included warning of this problem.  As a result, a naïve conclusion would be that RGGI investments are providing $65 per ton for emission reductions when in fact the investments cost $858 per ton reduced.  That order of magnitude difference has been glossed over in response to my comments on this issue.  I think it is obvious that proper accounting provides an inconvenient result.