Category: Regional Greenhouse Gas Initiative

In early January I posted an article describing my comments on the New York State Energy Research & Development Authority (NYSERDA) Regional Greenhouse Gas Initiative (RGGI) Operating Plan Amendment (“Amendment”) for 2023.  This is a follow-up that describes what happens to comments in that process.

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.   I submitted comments on the Climate Leadership and Community Protection Act (Climate Act).  implementation plan and have written over 270 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  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.

NYSERDA Board Background

This article describes the NYSERDA Board approval process for the 2023 RGGI Operating Amendment.  The NYSERDA Board description shows that this is another example of a process controlled by the Governor:

NYSERDA is governed by a board consisting of 13 members, including the Commissioner of the Department of Transportation, the Commissioner of the Department of Environmental Conservation, the Chair of the Public Service Commission, and the President and CEO of the Power Authority of the State of New York, who serve ex officio. The remaining nine members are appointed by the Governor of the State of New York with the advice and consent of the Senate and include, as required by statute, an engineer or research scientist, an economist, an environmentalist, a consumer advocate, an officer of a gas utility, an officer of an electric utility, and three at-large members.

At this time only 11 members are listed for the Board.  Three are Department Commissioners, two are from NYSERDA, and the head of the New York Power Authority rounds out six people who are for all intents and purposes part of the Hochul Administration.  All the others have some tie to climate resiliency and sustainability in their past working history or present titles.  

My Comments

NYSERDA designed and implemented a process to develop and annually update an Operating Plan which summarizes and describes the initiatives to be supported by RGGI auction proceeds.  On an annual basis, the Authority “engages stakeholders representing the environmental community, the electric generation community, consumer benefit organizations and interested members of the general public to assist with the development of an annual amendment to the Operating Plan.”  New York State claims that RGGI “has helped reduce greenhouse gases from power plants by more than half and raised nearly $6 billion to support cleaner energy solutions”.  I submitted detailed comments on the RGGI Operating Plan Amendments because the State has not figured out that there are ramifications to the historical success of the RGGI program and compliance implications associated with the RGGI auction proceed investments.

My comments evaluated the CO2 emissions trend of sources that are in the RGGI program.  I showed that between 2000 and 2021 New York EGU emissions have dropped from 57,114,438 tons to 28,546,529 tons, a decrease of 50%.  NYS EGU CO₂ emissions were 39% lower in 2021 than the three-year baseline emissions before RGGI started.  However, I showed that emissions have dropped primarily because coal and oil fueled generation has essentially gone to zero.  Natural gas has increased to cover the generation from those fuels but because it has lower CO₂ emission rates New York emissions have gone down.  I also evaluated the emission reductions that could be attributed to RGGI investments based on NYSERDA reports. I found that RGGI investments account for only 16% of the observed reductions.  This means that RGGI was not particularly successful as an emission reduction control program.

On the other hand, RGGI has successfully raised revenues for New York State.  From the start of the program through the start of the fiscal years considered in the Operating Plan RGGI auctions have raised nearly $6 billion.  My concern is that the relative lack of emission reductions attributable to New York’s RGGI auction proceeds was related to the fact that there was no emphasis on using the proceeds to provide emission reductions.  Because of the success of fuel switching reductions this has not been a concern but now there are no more fuel switching opportunities and because of the Indian Point shutdown, the RGGI unit emissions have gone up.  Going forward it will be increasingly difficult to make emission reductions.  Carbon dioxide emissions are directly tied to fossil-fuel combustion and energy production.  If, for any number of reasons, zero-emissions are not deployed fast enough to displace the energy produced by RGGI sources there might not be enough credits available to cover the emissions necessary to provide energy requirements. I concluded that it is incumbent upon the state to incentivize and subsidize carbon-free generation so that the RGGI sources can reduce operations and not jeopardize system reliability. 

As part of my comments, I also evaluated the programs in the Operating Amendment relative to their value for future EGU emission reductions.  The comments included descriptions of all the programs in the FY23-26 Amendment.  I commented briefly on each proposed program and classified each program relative to six categories of potential RGGI source emission reductions.  The first three categories cover programs that directly, indirectly or could potentially decrease RGGI-affected source emissions.  Those programs total 45% of the investments.  I also included a category for programs that will add load that could potentially increase RGGI source emissions such as programs to incentivize electrification, which totals 27% of the investments.  Programs that do not affect emissions are funded with 21% of the proceeds and administrative costs total another 7%. 

My comments noted that the draft Amendment explains that the programs in the portfolio of initiatives are designed to “support the pursuit of the State’s greenhouse gas emissions reduction goals”.  However, of the five goals only one addresses emission reductions.  The others are vague cover language to justify the use of RGGI auction proceeds as a slush fund for hiding administrative expenses, costs related to Climate Act implementation, and other politically favored projets at the expense of programs that affect CO₂ emissions from RGGI affected sources.  To date this has not been an issue because fuel switching has provided the necessary emission reductions.  However, there could be a problem in the next several years because no more fuel switching reductions are available at the same time that RGGI allowance allocations continue to decrease.  This exacerbates the potential of system reliability issues

Response to Comments

The question that intrigued me was what actually happened with the public stakeholder comments.  There is no response to comments document. There is a memo that presumably summarizes the three-year plan and might describe the public stakeholder’s comments.  If I ever get a copy of that memo, I will update this post.  The public had two opportunities to present comment described below.

The first opportunity for public input ( available at the discussion portion of the meeting video) was at the December 12, 2022 meeting.  The presentation noted that comments at the meeting would be treated as written comments and posted on the website.  Conor Bambrick, Environmental Advocates of New York, spoke at the meeting.  He asked whether the New York Sun program applied to Long Island and was told that it does not.  However, there is another program that does.  He asked whether there were any success stories available for the community heat pump program but the program has not reached that point yet.  He had specific question about components of the clean energy taskforce development program.  He also had some clarifying questions about various programs.  I don’t think any of his questions specifically asked for changes.  There was a comment that funding should not be provided for Hydrogen Hubs because a pilot project showed hydrogen could emit more NOx and Ozone than natural gas.  I am familiar with that project and he got his wires crossed because that is not what happened in the pilot project he referenced.  I do not think that any of these comments warranted a follow-up response so it is not surprising that the website does not include anything from the meeting.

The second opportunity was to submit written comments and two written comments submitted.  The New York Municipal Electric Utilities Association commented that the “Municipal Pilot Program” should be expanded.  As far as I can tell the only change to that program was to shift the dates but the total allocation remains $2.5 million.  My comment was the other one.  I mentioned that the Scoping Plan Implementation Research program was important because there are unresolved issues associated with the Scoping Plan.  The allocation for that program was reduced $1 million to $3 million.

As I noted above, my comments explained that if the operating plan for the RGGI auction proceeds did not invest sufficiently in programs that directly reduce emissions then there is a possibility that affected units may not be able to provide power when needed because they don’t have sufficient allowances to cover operations.  My point was that programs that do not directly, indirectly or could eventually reduce RGGI source emissions by displacing the energy they provide should be emphasized and programs that increase RGGI source emissions should be de-emphasized.  The following table shows that the final version of the amendment plan for RGGI auction proceeds does the exact opposite.  The total funding for RGGI reduction programs drops by $190 million and the % of the total goes down 9% to only 36%.

The NYSERDA Use of Auction Proceeds website describes the operating plan and provides links to the operating plan, the meeting materials for the Stakeholder meeting, and the Comments on the 2023 Draft Amendment.  The  approved Operating Plan Amendment and the transcript for the Board meeting where the Amendment was approved are both available.  I extracted the discussion for the operating plan approval but have not been able to find the memo referred to in the presentation.

The transcript for the meeting includes the following overview by John Williams, Executive Vice President for Policy and Regulatory Affairs  at NYSERDA: 

We’ll move this one along pretty quickly. We’re here with our annual routine RGGI approval process. So the, the Members have received both the three year plan that we’re proposing as well as a memo of summarizing all that. Just some high points here for awareness. You know, we did engage our annual process to come up with our proposal and present that to stakeholders. And on December 12th we held a webinar for receipt of stakeholder input on that. So some participation there and some exchange of thoughts happening at that December 12th webinar. The proposal was also open for written public comments through January 6th, and we did receive a couple of comments there. The proposal you have was you know, does take those public feedback into account

It is obvious that NYSERDA was going through the motions of the stakeholder process.  They had a meeting for stakeholder input, check.  They had a public comment period, check.  They posted both comments received, check.  John Williams told the Board that public feedback was taken into account, check.  They had a  discussion of the Operating Plan Amendment at the Board meeting, check.  John Williams responded to questions that came up during the discussion, check.   The Board voted to approve the Amendment, check.  Mission accomplished.

Response to Comments

The question that intrigued me was what actually happened with the public stakeholder comments.  There is no response to comments document. There is a memo that presumably summarizes the three-year plan and might describe the public stakeholder’s comments.  If I ever get a copy of that memo, I will update this post.  The public had two opportunities to present comment described below.

The first opportunity for public input ( available at the discussion portion of the meeting video) was at the December 12, 2022 meeting.  The presentation noted that comments at the meeting would be treated as written comments and posted on the website.  Conor Bambrick, Environmental Advocates of New York, spoke at the meeting.  He asked whether the New York Sun program applied to Long Island and was told that it does not.  However, there is another program that does.  He asked whether there were any success stories available for the community heat pump program but the program has not reached that point yet.  He had specific question about components of the clean energy taskforce development program.  He also had some clarifying questions about various programs.  I don’t think any of his questions specifically asked for changes.  There was a comment that funding should not be provided for Hydrogen Hubs because a pilot project showed hydrogen could emit more NOx and Ozone than natural gas.  I am familiar with that project and he got his wires crossed because that is not what happened in the pilot project he referenced.  I do not think that any of these comments warranted a follow-up response so it is not surprising that the website does not include anything from the meeting.

The second opportunity was to submit written comments and two written comments submitted.  The New York Municipal Electric Utilities Association commented that the “Municipal Pilot Program” should be expanded.  As far as I can tell the only change to that program was to shift the dates but the total allocation remains $2.5 million.  My comment was the other one.  I mentioned that the Scoping Plan Implementation Research program was important because there are unresolved issues associated with the Scoping Plan.  The allocation for that program was reduced $1 million to $3 million.

As I noted above, my comments explained that if the operating plan for the RGGI auction proceeds did not invest sufficiently in programs that directly reduce emissions then there is a possibility that affected units may not be able to provide power when needed because they don’t have sufficient allowances to cover operations.  My point was that programs that do not directly, indirectly or could eventually reduce RGGI source emissions by displacing the energy they provide should be emphasized and programs that increase RGGI source emissions should be de-emphasized.  The following table shows that the final version of the amendment plan for RGGI auction proceeds does the exact opposite.  The total funding for RGGI reduction programs drops by $190 million and the % of the total goes down 9% to only 36%.

The bottom line is that there is no description describing the response to the comments.  From what I could ascertain the comments received were not “taken into account”. The final amendment did the opposite of what was recommended for two program-specific suggestions.  My overall concern about emphasizing programs that could reduce RGGI emissions was also ignored and funding changed directly opposite of my suggestion.

Conclusion

The only indication that I have that someone read my comments is that I pointed out a typographical error that was corrected.  There is no evidence supporting the John Williams claim to the Board that “The proposal you have was you know, does take those public feedback into account”.  The fact is that the recommendations of the two written comments were ignored.  This is typical for New York stakeholder outreach, the only thing that matters to State Agencies is the process because the answer is in the back of the book.  The Hochul Administration picked the projects and selected the Board members who approved them to further their objectives.  The Administration only pretends to care about public stakeholder input.

So why do I bother submitting comments.  In this instance the Hochul Administration is getting themselves out on thin ice.  Carbon dioxide emissions are directly tied to fossil-fuel combustion and energy production.  If State investments do not displace energy use at the RGGI electric generating units at the same time that RGGI allowance availability shrinks, the time may come when the only compliance option available is to not operate.  That is the reason that I argued that a change of emphasis for RGGI allowance proceeds to prioritize emission reduction efforts was appropriate.  I submit comments because if there is a problem in the future the politicians will not be able to say they were not warned.

I recently published a summary of the Regional Greenhouse Gas Initiative (RGGI) Investments of Proceeds annual report and followed that up with a post on the New York-only report.  This post describes my comments on the New York State Energy Research & Development Authority (NYSERDA) Regional Greenhouse Gas Initiative (RGGI) Operating Plan Amendment (“Amendment”) for 2023.  This document describes the plans to use the RGGI proceeds in the next several years.  There are implications not only to the RGGI program but also for the Climate Leadership and Community Protection Act (Climate Act).  Although supporters of RGGI claim that it is a successful model to emulate my analyses show that it is not nearly as successful as claimed.

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.   I submitted comments on the Climate Act implementation plan and have written over 270 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  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 (Factsheet). 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 and Pennsylvania has joined but is not actively participating in auctions due to on-going litigation. 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.” 

NYSERDA Operating Plan Amendment

NYSERDA designed and implemented a process to develop and annually update an Operating Plan which summarizes and describes the initiatives to be supported by RGGI auction proceeds.  On an annual basis, the Authority “engages stakeholders representing the environmental community, the electric generation community, consumer benefit organizations and interested members of the general public to assist with the development of an annual amendment to the Operating Plan.”

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.

The draft Amendment notes that the initiatives described represent program activity proposed for the 2023 Operating Plan. The funding levels for each program include previously approved and the amounts proposed for FY23-24 through FY25-26.  The annual RGGI Operating Plan Stakeholder Meeting was held on December 12, 2022 to review the proposed Operating Plan Amendment.

This post summarizes the comments I submitted on the proposed Operating Plan Amendment.  My comments were separated into two main parts.  The first described the observed New York State (NYS) emission reductions from the electric sector since 2000 and the lessons that should be learned.  Those results and implications were discussed in my previous post.  The second section offered my comments on the specific programs in the Amendment.

NYSERDA Operating Plan Amendment Comments – Emission Trend Implications

The first section showed that between 2000 and 2021 New York EGU emissions have dropped from 57,114,438 tons to 28,546,529 tons, a decrease of 50%.  NYS EGU CO₂ emissions were 39% lower in 2021 than the three-year baseline emissions before RGGI started.  However, I showed that emissions have dropped primarily because coal and oil fueled generation has essentially gone to zero.  Natural gas has increased to cover the generation from those fuels but because it has lower CO₂ emission rates New York emissions have gone down.

My evaluation discovered issues associated with the NYSERDA RGGI Funding Status reports related to the observed CO₂ reductions compared to estimates of direct CO₂ savings and projections using heat input (mmBtu) and generation (MWhr) projected savings.  Consequently, the best estimate of observed emission reductions that can be attributed to RGGI are from the only two programs that claim direct CO₂ reduction savings: NY-Sun Initiative and NYSERDA Solar Electric.  Over the years 2013 to 2021, the total investment for those programs is $565 million and the claimed savings are 1,684,616 MWh and 861,442 tons of CO₂e with a calculated cost benefit of 565 $/ton.  The observed emissions decrease between 2013 and 2021 is 5,397,135 tons so the only CO₂ reductions that can conclusively be claimed from RGGI investments account for 16% of the observed emission reduction.  Because observed coal CO₂ emissions went from 5,463,637 tons in 2013 to zero in 2021 and oil CO₂ emissions went from 3,871,162 tons to 313,115 tons, I conclude that the primary reason for the observed electric sector emission reductions in New York was due to fuel switching.

These observations are relevant for the future of EGU emission reductions required for RGGI and the Climate Act. Coal and oil emissions from the RGGI affected sources are as low as they are going to get without retirement of oil-fired sources.  The average CO2 emissions reduction per year from RGGI investments has been 95,716 tons since 2013.  New York Part 242 CO2 Budget Trading Program specifies an annual reduction of RGGI allowances of 880,493 per year starting in 2022 and continuing to 2030.  That reduction is nearly ten times more than the reductions from RGGI auction proceed investments.  The Climate Act is going to require even more emission reductions.  Electric generating unit owners and operators have no options available for additional emission reductions other than reducing their operating times.  It is incumbent upon the state to incentivize and subsidize carbon-free generation so that the RGGI sources can reduce operations and not jeopardize system reliability.  It is not clear where those reductions will come from given the poor record of RGGI-funded program investments and the lack of RGGI focus on direct emissions reduction programs.

NYSERDA Operating Plan Amendment Comments – Operating Plan Amendments

In the second section of my comments, I evaluated the programs in the Operating Amendment relative to their value for future EGU emission reductions.  The comments included descriptions of all the programs in the FY23-26 Amendment.  I commented briefly on each proposed program and classified each program relative to six categories of potential RGGI source emission reductions.  The first three categories cover programs that directly, indirectly or could potentially decrease RGGI-affected source emissions.  Those programs total 45% of the investments.  I also included a category for programs that will add load that could potentially increase RGGI source emissions which totals 27% of the investments.  Programs that do not affect emissions are funded with 21% of the proceeds and administrative costs total another 7%. 

I evaluated potential emissions for five Integration Analysis and New York Independent System Operator (NYISO) scenario projections of load through 2030.  They all agree that fossil generating resource loads will increase or remain nearly constant until 2026 when large amounts of renewable resources are expected to come on line.  On the other hand, RGGI allowance allocations decrease so that NY emissions are projected to exceed the annual RGGI allocations.  This problem peaks in 2025 but in that year NYISO Resource Outlook scenario 1 projects EGU emissions are 10% higher than the RGGI allocation. 

In order to address the need for strategies that can displace RGGI-affected source generation the RGGI Operating Plan amendment needs to reevaluate priorities.  I argued that NYSERDA must verify that other investments will provide the necessary reduction in RGGI-affected source emissions in order to justify spending more than half the RGGI proceeds on programs unrelated to RGGI emissions.  My comments on specific amendments recommended that most of the unrelated programs not be funded.

I only had specific comments on one proposed program. The Climate Act is pushing the envelope of zero-emissions technology so the Scoping Plan Implementation Research program is certainly appropriate.  I recommended that this program fund projects for dispatchable emissions-free resource DEFR) requirements and the question of wind and solar resource availability during winter doldrums.

Conclusion

The draft Amendment explains that the programs in the portfolio of initiatives are designed to “support the pursuit of the State’s greenhouse gas emissions reduction goals”.  Of the five goals only one addresses emission reductions.  The others are vague cover language to justify the use of RGGI auction proceeds as a slush fund for hiding administrative expenses and costs related to Climate Act implementation at the expense of programs that affect CO₂ emissions from RGGI affected sources.  To date this has not been an issue because fuel switching has provided the necessary emission reductions.  However, there could be a problem in the next several years because no more fuel switching reductions are available at the same time that RGGI allowance allocations continue to decrease.  In the worst case, affected units may not be able to come on line because they don’t have sufficient allowances to cover operations.

I recently published a summary of the annual analysis of the Regional Greenhouse Gas Initiative (RGGI) annual Investments of Proceeds report.  New York State publishes its own version that I have not bothered to analyze because the reporting metrics are not as clear as the RGGI report.  However, the Climate Action Council has recommended: a tax or fee establishing a carbon price or a “cap-and-invest” program similar to RGGI  to provide funding for the Climate Leadership and Community Protection Act (Climate Act).  Supporters of RGGI claim that it is a successful model to emulate so I decided to evaluate how effective RGGI funding has been to reduce New York carbon dioxide (CO₂) emissions.

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.   I submitted comments on the Climate Act implementation plan and have written over 250 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  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.

This is a long and technical post so I have brought the discussion and conclusion to the beginning.

Discussion

This analysis wades through the New York RGGI funding reports prepared by the New York State Energy Research & Development Authority (NYSERDA).  Those reports describe the expected emission (tons CO2e), load (MWhr), and heat input (mmBtu) savings from programs funded by RGGI proceeds.  I compared the emission savings to the observed RGGI emissions from 2013 to 2021.  The only two programs that directly affect CO2 emissions are the NY-Sun Initiative and NYSERDA Solar Electric programs.  All the other programs in the Green Jobs – Green New York, Energy Efficiency, Community Clean Energy, Clean Energy Communities, and Charge NY categories affect CO2 emissions indirectly so the emission savings reductions claimed do not necessarily affect RGGI source emissions.

The observed New York State emissions from RGGI-affected sources decreased between 2013 and 2021 by 5,397,135 tons.   If just the CO2 reduction savings that are listed for the NY-Sun Initiative and NYSERDA Solar Electric programs are considered over the years 2013 to 2021, the total investment is $565 million and the claimed savings are 861,442 tons of CO₂e with a calculated cost benefit of 565 $/ton.  Those CO2 reductions account for 16% of the observed emission reduction.  Because observed CO2 emissions from coal-firing went from 5,463,637 tons in 2013 to zero in 2021 and CO2 emissions from oil-firing went from 3,871,162 tons to 313,115 tons, I conclude that the primary reason for the observed electric sector emission reductions in New York was due to fuel switching.  I believe that the RGGI cost adder to fuel costs is a much smaller component than the cost of fuel itself so fuel switching was not driven by the cost of RGGI allowances.

There are implications for future emission reduction requirements. Coal and oil emissions from the RGGI affected sources are as low as they are going to get without retirement of oil-fired sources.  The average CO2 emissions reduction per year has been 95,716 tons since 2013.  New York Part 242 CO2 Budget Trading Program specifies an annual reduction of RGGI allowances of 880,493 per year starting in 2022 and continuing to 2030.  That reduction is nearly ten times more than the reductions from RGGI auction proceed investments.  The Climate Act is going to require even more emission reductions.  It is not clear where those reductions will come from.

Conclusion

RGGI is supposed to be a CO2 emissions reductions control program.  Proponents of RGGI brag about the emission reductions observed and the value of auction proceed investments.  However, the observed emission reductions are primarily due to fuel switching in New York.  NYSERDA has not focused its RGGI proceed investments on emission reductions which has not been a problem to this point but that strategy is about to hit a wall.  The RGGI-affected sources have been running more the last two years because the State shut down 2,000 MW of zero-emissions nuclear generating capacity. Couple that with insignificant investment in new zero-emissions generating resources from the RGGI proceeds to ramp up actual electric generating emission reductions, the potential problem is that the RGGI-affected sources will not have sufficient allowances to operate. The RGGI allowance market is so confused now with states coming in and out, the potential problem of insufficient allowances to operate may be kicked down the road.  However, there are implications that, so far, have not been acknowledged by the state.

On December 19, 2022 the Climate Action Council approved and adopted the Final Scoping Plan that outlines a plan to make the New York electric system zero-emissions by 2040.  I expect that this mandate will be incorporated into the New York electric generating unit emission caps with even more stringent limits.  The Scoping Plan proposes to use a “cap and invest” program similar to RGGI to provide funds for the electric system zero-emissions transition by 2040 and the overall net-zero by 2050 target.  The ramifications of the poor RGGI-funded program investments record of actually reducing emissions has not been considered.  This is yet another example why the ambitions of the Climate Act will flounder on the shoals of reality.

Background

RGGI is a “cooperative effort among eleven Eastern states to reduce carbon dioxide (CO2) emissions from power plants within each participating state” (Factsheet). This market-base program among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont set a cap to reduce CO2 emissions starting in 2009.  New Jersey was in at the beginning, dropped out for years, and re-joined in 2020. Virginia joined in 2021 and Pennsylvania has joined but is not actively participating in auctions due to on-going litigation. 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 Climate Act establishes a “Net Zero” target (85% reduction and 15% offset of emissions) by 2050. The Climate Action Council is responsible for preparing the Scoping Plan that will outline how to “achieve the State’s bold clean energy and climate agenda.”  The Scoping Plan was approved by the Council on December 19, 2022.  Chapter 17 in the Plan describes economywide strategies:

After initially identifying three options for consideration, the Council narrowed its consideration to two economywide GHG policies: a tax or fee establishing a carbon price and a program that caps emissions across the economy, or within particular sectors, and allocates emission allowances primarily through an auction mechanism that provide revenues for investment, known as “cap-and-invest.” The Council concluded that clean energy supply standards, which would require providers of energy across the economy to reduce the carbon intensity of fuels they introduce into commerce, can complement economywide structures as discussed in this chapter, but because such standards apply only to energy sources, they do not offer the same comprehensive coverage and opportunities for cross-sector efficiency. For this reason, the Council determined that clean energy supply standards (like the Clean Energy Standard [CES] for electricity and clean transportation standard) should be considered separately under sectoral chapters.

A carbon tax/fee would establish the price per ton of greenhouse gas (GHG) emissions that regulated entities would pay. Carbon tax/fee proposals have been considered by the New York State Legislature, and the New York Independent System Operator (NYISO) put forward a proposal for a fee on every ton of carbon dioxide (CO2) emission from the electricity sector. A cap-and-invest program would also result in a price on emissions, but indirectly as the government entity establishes the emissions cap while the price is determined based on the available supply of and demand for emission allowances, rather than directly by the government entity. It would require regulated entities to purchase emission allowances, usually at an auction, to match their emissions. The difference from carbon tax/fee, however, is that a cap-and-invest program provides emissions certainty. A cap-and-invest program would limit the number of allowances sold, with the available amount decreasing year-by-year to ensure that overall aggregate emissions decline. Cap-and-invest programs have been implemented economywide in California and Quebec, and Washington recently passed legislation and adopted a rule to establish such a program. There are also existing sector-specific cap-and-invest programs, such as the Regional Greenhouse Gas Initiative (RGGI), that cover emissions from the electricity sector and include New York as a participant. In contrast to a carbon tax or fee, which would have to be enacted by the Legislature, the New York State Department of Environmental Conservation (DEC) could promulgate regulations establishing a cap-and-invest program using its existing authority to adopt regulations that reduce emissions.

Both carbon tax/fee and cap-and-invest programs provide a price signal stimulating lower emission choices and a source of funding for public investment and incentive programs. Both would regulate the bulk of energy, industrial, and other emissions in New York, including both fossil fuels and alternative fuels consistent with the requirements of the Climate Act. Both would be structured to comply with Environmental Conservation Law (ECL) § 75-0117, which requires that at least 35% of the overall benefits of spending be directed to Disadvantaged Communities, with a goal of 40%. But they have one fundamental difference: while both types of programs place a charge on emissions and invest the revenues, only a cap-and-invest program would implement a declining, enforceable cap on emissions overall and a mechanism for State enforcement of such limits against individual sources, thus ensuring that aggregate emissions do not exceed the statewide emission limits.

RGGI Success Narrative

I have written multiple articles that argue that RGGI advocates mis-lead the public when they imply that RGGI programs were the driving force behind the observed over 50% reduction in power sector CO2 emissions since the start of the program.  In my latest evaluation I found that since 2009 RGGI funded control programs have been responsible for 5.6% of the observed reductions.  The Investment of RGGI Proceeds in 2020 report does not directly provide the numbers necessary to calculate that estimate which I have come to believe is deliberate.  When the sum of the RGGI investments is divided by the sum of the annual emission reductions the CO2 emission reduction efficiency is $818 per ton of CO2 reduced.  I concluded that RGGI is not an effective CO2 emission reduction program.

The latest New York RGGI funding report prepared by the New York State Energy Research & Development Authority (NYSERDA) is the Semi-Annual Status Report through June 30, 2022.  It states that:

This report is prepared pursuant to the State’s RGGI Investment Plan (2020 Operating Plan) and provides an update on the progress of programs through the quarter ending June 30, 2022. It contains an accounting of program spending; an estimate of program benefits; and a summary description of program activities, implementation, and evaluation. An amendment providing updated program descriptions and funding levels for the 2021 version of the Operating Plan was approved by NYSERDA’s Board in January 2022.

The State invests RGGI proceeds to support comprehensive strategies that best achieve the RGGI CO2 emission reduction goals. These strategies aim to reduce global climate change and pollution through energy efficiency, renewable energy, and carbon abatement technology.

New York Power Sector CO2 Emissions

The first step in evaluating the effect of RGGI on CO2 emissions is to determine the observed trend of New York electric utility emissions.  My background is in the electric generating sector and I have been involved in the reporting process for electric generating unit (EGU) continuous emissions monitoring system (CEMS) data since the Environmental Protection Agency (EPA) mandated these systems for the Acid Rain Program.  EPA’s Clean Air Markets Division maintains a data base of all the emissions data collected by every power plant in the United States since the mid-1990’s.  Those data are used for RGGI program compliance and are used in this article.

The following graph shows New York State CO2 emissions since 2000 based on data in spreadsheet NY RGGI Funded Program Status Report Summary.  These data are the sum of all New York units that are required to submit CEMS data to EPA for any air pollution control program.  The EPA database includes supplemental information such as the primary fuel type of each generating unit and I have listed CO2 emissions by fuel type.  In 2000, New York EGU emissions were 57,114,438 tons and in 2021 they were 28,546,529 tons, a decrease of 50% (Table 1).  In NYS 2021 CO2 emissions are 39% lower than the three-year baseline emissions before RGGI started.  The reason that emissions have dropped is because coal and oil fuels have essentially gone to zero as shown in the following graph.  Natural gas has increased to cover the generation from those fuels but because it has lower CO2 emission rates the New York emissions have gone down.

New York RGGI Program Investment Reductions

In the RGGI funding reports Chapter Summary of Portfolio and Program Benefits describes the NYSERDA tracking process:

NYSERDA begins tracking program benefits once project installation is complete and provides estimated benefits for projects under contract that are not yet operational (pipeline benefits). Estimated benefits are based on the expected lifetime benefits from installed and pipeline savings. The metrics presented in this section are estimates and not evaluated unless otherwise noted. Future evaluation and status reports will present the results as they are available. NYSERDA expects verified net savings to be incorporated in the year-end 2022 report. Program benefits may be reported prior to the financial reporting of funds spent, as fund transfers may lag behind the installation date. At this time, the program benefits include some projects that are jointly supported by other non-RGGI funding sources administered by NYSERDA.

The NYSERDA RGGI funding report formats and material presented have changed over time.  I found that only since 2013 were the reports consistent enough for my purposes.  I do not understand the quote in the preceding paragraph: “metrics presented in this section are estimates and not evaluated unless otherwise noted.”  I used the numbers as they were presented in the report. 

The estimated cumulative annual net GHG emissions savings as of the end of the reporting period for each of the reports since 2013 are shown in Table 2.  I did not use the “lifetime” savings data because I have always felt that was inappropriate.  In this application I am trying to compare the RGGI program benefits reductions to the RGGI compliance metric of an annual emission cap.  Lifetime reductions are clearly irrelevant.  The document description “Estimated benefits are based on the expected lifetime benefits from installed and pipeline savings” suggests that the values shown are lifetime values but the table includes both power (MMBtu) and energy (MWhr) savings where lifetime values are more appropriate for energy efficiency program accounting. 

Emission trends over short periods are unreliable as indicators of policy implementation because there are other factors affecting the operation of generating units.  The biggest outside factor is weather.  If the year was abnormally hot or cold then the emissions would go up because the units operated more.  There also can be issues related other units going down to problems or retirements.  For example, the recent CO2 trend is New York is strongly affected by the closure of 2,000 MW of zero-emissions generating at Indian Point and I understand the units on Long Island have run more the last couple of years due to issues with transmission cables under Long Island Sound.  Keep this issue in mind when looking at Table 3 that compares New York CO2 emissions with the cumulative RGGI net GHG emission savings.  The emissions decrease between 2013 and 2021 is 5,397,135 tons but the RGGI investments claimed total 7,460,423 tons.  NYSERDA is claiming that RGGI investments were responsible for all the emission reductions!

I don’t believe that the RGGI investments could actually be responsible for all the observed reductions.  I think that fuel switching is more likely to be the cause of the emission reductions observed.  Over this time period the last coal units shut down and the oil-fired units reduced their emissions about as low as I expect they can go and still provide capacity support. Another possible reason is that I assumed that the annual installed and pipeline emission savings represented an actual annual projection and not lifetime emission savings.  That could account for the unrealistically high emission reduction claim.

There is another possible explanation.  Appendix A, Section A.2 in Semi-Annual Status Report through June 30, 2022  describes the CO2 reduction savings methodology:

Emissions factors translate the energy savings data into annual GHG emission reduction values. The GHGs evaluated in the report include carbon dioxide, methane, and nitrous oxide. Because each of these gases has a different global warming potential, emissions for gases other than carbon dioxide are converted into carbon dioxide equivalent units (CO2e) through multiplication with their appropriate Intergovernmental Panel on Climate Change (IPCC) global warming potential value, shown in Table A-1.

Therefore, the other possibility for the discrepancy is that the cumulative RGGI net GHG emission savings in Table 2 of the status reports is not just CO2 but also includes methane and nitrous oxide.  If that is the case then it would explain some of the inconsistency.  It also would be inappropriate.  RGGI is supposed to be a CO2 emissions reduction program.  This document should report on the efficacy of RGGI-program investments and provide evidence how it will work in the future.  In order to determine the value of the RGGI investments relative to the RGGI emission targets the only relevant GHG is CO2.  Including methane and nitrous oxides misleads readers because it suggests higher emissions than what can be expected for investments needed to meet the RGGI emission reduction targets.

Appendix A goes on to say:

NYSERDA uses the emission factors shown in Table A-2 to calculate emissions from on-site fuel combustion derived from the U.S. Environmental Protection Agency (EPA) emission coefficients. The CO2e values represent aggregate CO2, CH4, and N2O emissions. If a program covers more than one sector, then the estimated reduction is based on a calculated average emission factor for the affected sectors.

Without more documentation I will admit to being flummoxed.  This paragraph states that the emission factors used “represent aggregate CO2, CH4, and N2O emissions” but the values in the following paragraph are close to the observed CO2 only emission rates observed.  This suggests that if the methane and nitrous oxide components of the aggregate emission rates are included that they are very small.  It would be helpful if the documentation provided an example calculation showing how the aggregate factors were developed.

The final relevant section of Appendix A states:

For projects installed prior to 2016, a marginal emission factor of 1,160 pounds of CO2e/MWh estimates emission reductions associated with electricity use reductions for all sectors. When a project is installed and committed from 2016 onward, a marginal emission factor of 1,103 pounds of CO2e/MWh is applied to estimate emission reductions associated with electricity use reductions for all sectors. Although electricity savings may not lead to near-term emission reductions under the RGGI CO2 cap, savings will potentially reduce imports of electricity to NYS; the demand for CO2 allowances, leading to a possible future reduction in the cap; and the carbon footprint of end users, as they will be responsible for a smaller percent of the emissions associated with electricity production.

Even if the marginal emission factors represent aggregate rates for CO2 that incorporate methane and nitrous oxides, this is an over-estimate of current CO2 emission rates.  The following table lists the calculated marginal emission rate for New York State electric generating units subject to RGGI.  The fact is that current New York CO2 emissions are almost exclusively due to natural gas emissions that are significantly lower than the marginal emission factors quoted.  At a minimum, there should be another methodology adjustment to correct for this over-estimate of emission reductions that could be expected when RGGI investments reduce energy use.

Alternative RGGI Program Investment Reduction Methodologies

I calculated CO2 annual emissions in two alternative ways.  In the status reports Table 2: Summary of Expected Cumulative Annual Program Benefits lists the net energy savings (annual MMBtu) and net electricity savings or renewable energy generation (annual MWh).  The EPA emissions data includes those parameters so that an annual New York emission rate based on both parameters can be calculated.  Once the calculated emission rate is determined then it can be multiplied by the projected annual savings due to RGGI funded programs to get an annual total emissions estimate.

Table 4 uses the heat input (MMBtu) data to calculate annual CO2 emission “savings”.  Using this methodology, the cumulative total CO2 emissions expected from the RGGI-funding programs is 2,040,461 tons or 7.1% of the 2021 annual emissions.  Recall that the emissions decrease between 2013 and 2021 is 5,397,135 tons so at least this estimate is less than the observed emission reduction. 

Table 5 uses the load (MWhr) data to calculate annual CO2 emissions.  Using this methodology, the cumulative total CO2 emissions expected from the RGGI-funding programs is 6,663,077 tons or 23.3% of the 2021 annual emissions.  Recall that the emissions decrease between 2013 and 2021 is 5,397,135 tons so this estimate is greater than the observed emission reduction. 

RGGI-Funded Program Reductions

I believe that the underlying cause for the differences between the observed CO2 reductions using CO2 savings directly or the heat input (mmBtu) and generation (MWhr) data is that most of the RGGI-funded programs indirectly affect emissions.  All the programs in the Green Jobs – Green New York, Energy Efficiency, Community Clean Energy, Clean Energy Communities, and Charge NY categories affect CO2 emissions indirectly.  In the Renewable Energy category only the NY-Sun Initiative and NYSERDA Solar Electric programs fund programs that subsidize renewable energy projects that directly offset generation from fossil-fired generating units affected by RGGI.  All the other programs reduce energy use that indirectly reduces the need for RGGI-affected unit generation. 

Table 6 classifies the savings into two categories: direct and indirect effects on CO2 emissions for the latest year.  The only two programs (NY-Sun Initiative and NYSERDA Solar Electric) that directly affect emissions invested $90 million through June 30, 2022 and are responsible for 272,964 MWh and 139,729 tons of CO₂e savings with a calculated cost benefit of $644 $/ton.  All the other programs listed in the latest NY RGGI Funding Status report invested $686 million through June 30, 2022 and are responsible for 1,663,357 MWh, 8,696,971 mmBtu and 1,516,469 tons of CO₂e savings with a calculated cost benefit of $452 $/ton. Note that the report does not report heat input (mmBtu) savings for the direct CO2 reduction programs.

Table 6: Summary of Expected Cumulative Annualized Program Benefits through 30 June 2022

The key point of this long and technical article is to make the point that the total CO2 savings listed in the reports are not necessarily reductions that can be credited towards the observed emission reductions.  Energy efficiency programs reduce the fuel needed to heat homes and lead to direct emission reductions in the building sector if oil, gas, or propane are used for heating.  Energy efficiency reductions reduce electric generating load for cooling and homes that use electric heat but trying to figure out just how much that affects RGGI emissions is not straight-forward.  I have never seen a state report quantify that reduction.

If just the CO2 reduction savings that are listed for the NY-Sun Initiative and NYSERDA Solar Electric programs are considered over the years 2013 to 2021, the total investment is $565 million and the claimed savings are 1,684,616 MWh and 861,442 tons of CO₂e with a calculated cost benefit of $565$/ton.  Recall that the emissions decrease between 2013 and 2021 is 5,397,135 tons so the only CO2 reductions that can conclusively be claimed account for 16% of the observed emission reduction.  Because observed coal CO2 emissions went from 5,463,637 tons in 2013 to zero in 2021 and oil CO2 emissions went from 3,871,162 tons to 313,115 tons, I conclude that the primary reason for the observed electric sector emission reductions in New York was due to fuel switching.

Normally I publish an annual analysis of the Regional Greenhouse Gas Initiative (RGGI) annual Investments of Proceeds update soon after the release of the report but I was busy preparing comments on the New York Climate Leadership & Community Protection Act so this update is very late. This is the fifth installment of my annual updates on the RGGI proceeds report.  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 successfully provides substantive emission reductions 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 (Factsheet). 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 and Pennsylvania has joined but is not actively participating in auctions due to on-going litigation. 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 investment proceeds update was released in May 2022.   The Investment of RGGI Proceeds in 2020 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 $196 million in 2020 auction proceeds and expect lifetime benefits of the RGGI investments made in 2020 to include $1.9 billion in lifetime energy bill savings and 6.6 million short tons of CO₂ emissions avoided.  The report breaks down the investment categories as follows:

• Energy efficiency makes up 35% of 2020 RGGI investments and 53% of cumulative investments. Programs funded by these investments in 2020 are expected to return about $1.2 billion in lifetime energy bill savings to more than 56,000 participating households and over 700 businesses in the region and avoid the release of 4.6 million short tons of CO2.
• Clean and renewable energy makes up 18% of 2020 RGGI investments and 14% of cumulative investments. RGGI investments in these technologies in 2020 are expected to return over $600 million in lifetime energy bill savings and avoid the release of more than 1.7 million short tons of CO2.
• Beneficial electrification makes up 11% of 2020 RGGI investments and 3% of cumulative investments. RGGI investments in beneficial electrification in 2020 are expected to avoid the release of 177,000 short tons of CO2 and return nearly $90 million in lifetime savings.
• Greenhouse gas abatement makes up 5% of 2020 RGGI investments and 8% of cumulative investments. RGGI investments in greenhouse gas (GHG) abatement in 2020 are expected to avoid the release of more than 160,000 short tons of CO2 and to return over $51 million in lifetime savings.
• Direct bill assistance makes up 19% of 2020 RGGI investments and 16% of cumulative investments. Direct bill assistance programs funded through RGGI in 2020 have returned over $37 million in credits or assistance to consumers.

There was a change in these categories in this report relative to previous reports.  This is the first version of this report which includes beneficial electrification as its own investment category.  In previous versions of this report, investments in beneficial electrification programs were included within the other major investment categories.

Emissions Reductions

In my previous articles on the Proceeds reports, I have argued that RGGI mis-leads readers when they claim that the RGGI states have reduced power sector CO2 pollution over 50% since 2009. In the following table, I list the 9-state RGGI emissions and percentage reduction from a three-year baseline before the program started in 2009.

I have argued that the implication in the 50% claim is that the RGGI program were primarily responsible for the observed reduction even as the economy grew (Figure 1 from the report).

I believe that their insinuation that RGGI was primarily responsible for the emission reductions is wrong.  The following table lists the emissions by fuel types for these nine RGGI states.  It is obvious that the primary cause of the emission reductions was the fuel switch from coal and residual oil to natural gas.  This fuel switch occurred because it was economic to do so.  I believe that RGGI had very little to do with these fuel switches because fuel costs are the biggest driver for operational costs and the cost adder of the RGGI carbon price was too small to drive the use of natural gas over coal and oil. 

I believe that the appropriate measure of RGGI emissions reductions is the decrease due to the investments made with the auction proceeds so I compared the annual reductions made by RGGI investments.  The biggest flaw in the RGGI 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 following table lists the annual avoided CO2 emissions generated by the RGGI investments from previous reports.  The accumulated total of the annual reductions from RGGI investments is 3,658,696 tons while the difference between the three-year baseline of 2006-2008 and 2020 emissions is 65,079,196 tons.  The RGGI investments are only directly responsible for 5.6% of the total observed annual reductions over the baseline to 2020 timeframe! 

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 5.6% 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.

Benefits

Table 1 from the report lists two benefits of 2020 RGGI Investments: emission reductions and energy bill savings.  Energy bill savings derive from investments in energy efficiency savings and other efforts that directly reduce costs to consumers.  These energy saving benefits typically account for total savings over the lifetime of the project investment.  RGGI does the same thing with the CO2 emission reductions but I think that is misleading because the emission reduction metric is annual emissions and not lifetime emissions. 

Emission Reduction 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.

Recall that RGGI provides lifetime CO2 emission reductions but I think that is misleading because it suggests that the emission reduction cost efficiency of the investments is the total investments divided by the lifetime benefits of those benefits.   For example, dividing the 2020 investments of $196 million by the lifetime avoided CO2 emissions yields a value of $29.  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 and this suggests that RGGI investments are cost effective relative to the social cost of carbon.

However, the social cost of carbon value is calculated for an annual reduction of one ton.  In particular, 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.) In order to calculate the CO2 emissions reduction efficiency consistent with the social cost of carbon, the proper estimate is the total investments since the start of the program divided by sum of the annual emission reductions.  The problem is that the RGGI reports do not provide that total and instead only provide the sum of the annual lifetime CO2 avoided emissions.

The Proceeds reports always include 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 sum the values in the previous reports to provide that information as shown in the Accumulated Annual Regional Greenhouse Gas Initiative Benefits Through 2020 table.  The accumulated total of the annual reductions from RGGI investments is 3,658,696 tons through December 31, 2020. The sum of the RGGI investments in the previous table is $2,991,215,917 over that time frame.  The appropriate comparison to the social cost of carbon is $2.991 billion divided by 3,658,696 tons or $818 per ton reduced. 

Conclusion

The 2020 RGGI Investment Proceeds report tries to put a positive spin on the poor performance of RGGI auction proceeds 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 5.6% 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.  When the sum of the RGGI investments is divided by the sum of the annual emission reductions the CO2 emission reduction efficiency is $818 per ton of CO2 reduced.  I conclude that RGGI is not an effective CO2 emission reduction program.

The Regional Greenhouse Gas Initiative (RGGI) is a carbon dioxide control program in the Northeastern United States.  One aspect of the program is a program review that is a “comprehensive, periodic review of their CO2 budget trading programs, to consider successes, impacts, and design elements”.  This article describes the first listening session of the third RGGI program review.

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 is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia 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.” 

Proponents tout RGGI as a successful program because participating states have “cut carbon pollution from their power plants by more than half, improved public health by cutting dangerous air pollutants like soot and smog, invested more than $3 billion into their energy economies, and created tens of thousands of new job-years”.  Others have pointed out that RGGI was not the driving factor for the observed emission reductions.  My work supports that conclusion and points out that the cost-effectiveness of the investments from this carbon tax reduce CO2 emissions at a cost of $858 per ton which is far greater than the social cost of carbon metric.  In other words, RGGI investments not a cost-effective way to reduce CO2 emissions.

Third Program Review Listening Session 5 October 2021

The slides for the listening session and the meeting recording for the listening session give a good overview of what is planned.  Briefly the RGGI states are looking for input on the allowance cap, trajectory for changing the cap, allowance bank, compliance mechanisms and requirements, offsets, and “comment on how states can further address environmental justice and other equity concerns, including through program design and/or the use of RGGI auction proceeds to support underserved and/or otherwise affected communities.”

I posted an article that described my initial comments on the program review.  My comments recommend making no changes.  In the next few years, the RGGI allowance market will change to the unprecedented emissions trading situation in which the majority of the RGGI allowances are held by entities who purchased allowances for investment rather than compliance purposes.  No one knows how the market will react and the compliance mechanisms are working well as is so there is no need to change anything at this time.  I showed that RGGI investments only were directly responsible for less than 5% of the total observed reductions since RGGI began in 2009 the rest of the observed reductions occurred due to other factors, primarily fuel switching. Based on that observation, it appears to me that the goal of RGGI should be to balance the cap with emissions so that the allowance bank is only used for year-to-year variations in weather-related excess emissions.  Over time it may become necessary to adjust the emission reduction trajectory but that should be based on observations and not model projections.

The 5 October 2021 listening session consisted of three parts.  Presenters from RGGI and the RGGI states described the program and goals of the third program review in the first part.  They allocated time for questions and answers about the process and goals.  Finally, they offered stakeholders the opportunity to present oral comments.  The remainder of this post addresses those comments.

Ten people presented appropriate comments.  A couple of other people asked questions that were out of scope for the purpose of the meeting and I did not include their comments in this summary.  I classified the commenters into five categories.  The first category is “Little Green”.  There were two of these grass roots advocacy organizations which are usually non-profits, have small staff, address limited local and regional issues, and have not been around for a long time.  There were three commenters in the second category, “Green Analysis”.  These are consultants that have technical staff available to analyze environmental issues and policies.  The third category, “Green Legal”, had two commenters.  These are organizations that have lawyers who address environmental legal issues.  The fourth organization category is “Big Green”.  Both the National Resources Defense Council and the Environmental Defense Fund made comments.  These are large organizations that have advocates, scientists and lawyers, have been around for a long time and have large revenues and endowments.  Finally, there is a category for organizations that commented on RGGI solely because they are interested in the money available.  Only one commenter fit this description.

All of the commenters explicitly or implicitly claimed that RGGI has been a success.  Most of the commenters managed to request that future emissions reductions be “equitable” and that investments from auction proceeds consider disadvantaged communities.  Phelps Turner from the Conservation Law Foundation went so far as to suggest that 70% of the proceeds should be invested in disadvantaged communities.

Some commenters only addressed a single issue.  Paul R. from a land trust in Rhode Island argued that RGGI funds should be allocated to organizations like his so that they can set-aside land for carbon sequestration.  Laura H. from the Partnership for Policy Integrity wants the exclusion for biomass rescinded because the emissions from other pollutants than CO2 are high from these sources.  Kai S from the Green Energy Consumers Alliance wants revisions to the voluntary renewable energy credit market.  Nate B. from the Southern Environmental Law Center argued that vertically integrated utilities should be treated differently than non-regulated generating companies in the auction process.

Six of the commenters said that the emission caps should be tightened to reduce zero emissions by a date certain.  For example, Drew Stilson, from the Environmental Defense Fund said that the RGGI emissions cap should be updated to be in line with “what the science says is necessary to avoid the worst impacts of climate change”.  He said that emissions from the electricity sector must be reduced by  “at least 80% by 2030” because it is critical in “achieving the Biden Administration’s commitment to a 50% reduction across the economy by 2030”.  My impression is that most believe that RGGI state CO2 emissions should be zero by 2035.

Zero Emissions Trajectory

None of the commenters who advocated for a zero emissions cap by 2035 to satisfy a political target without any regulatory authority have any responsibilities for keeping the lights on. Easy for them to say and no personal consequences if their aspirational goals fail.  It appears that the emotional need to meet this target because their selected science says it is necessary over rides the common-sense question whether such a target is feasible. 

This section looks at an example zero-emissions cap by 2035.  Based on the third program review timeline I don’t think a revised cap could be implemented before 2024 which is appropriate because that is the start of a new compliance period. 

In my previous analysis I argued that continued fuel switching could produce zero-emissions from the more carbon intensive sources by 2030 so I calculated a linear reduction to zero out those emissions by 2030 from all but natural gas and “other fuel” sources.  For the zero emissions trajectory for the remaining sources by 2035, I calculated a similar trajectory of reduced heat input from those fuels and estimated an emissions trajectory to zero by 2035.  If RGGI were to make its emissions caps consistent with those trajectories then the total allocations from 2024 to 2035 cap would have to equal the cumulative emissions in the fuel source type trajectories over that period minus the allowance bank at the end of 2023. A revised cap that reduces the allowance bank and the allowance allocations is shown in the revised cap column of Table 1, Eleven-State RGGI Projected Emissions and Allowance Margin for Zero-Emissions By 2035 Scenario.  

Feasibility of Zero-Emissions by 2035

In order to eliminate natural gas-powered generation, a total of 118,815,096 MMBtu of replacement energy must be found to displace its use every year between 2024 and 2035.  Using the average of the last three years of EPA Clean Air Markets Division ratio data between heat input (MMBtu) and gross load (MWh) the natural gas displacement heat input is equivalent to 15,000,000 MWh.  The average of the last three years energy output at the now retired Indian Point unit 3 was 8,594,967 or 57% of the displaced natural gas energy output.  In 2020 New York had 1,985 MW of installed onshore wind energy that had a capacity factor of 25.2% and at that rate 6,780 MW (3.4 times) additional wind capacity would be needed to match the natural gas output.  For new onshore wind with a capacity factor of 35% 4,881 MW per year of new generation would have to be built.  Offshore wind with a capacity factor of 50% would only need to develop 3,417 MW but 8,543 MW of solar with a capacity factor of 20% would need 8,543 MW developed. 

In addition, the generation from natural gas and nuclear is dispatchable so comparing the energy output between them is apples to apples.  However, because wind or solar is not dispatchable a direct energy comparison is not appropriate which means that additional resource development and energy storage would also have to be included.  A recent presentation by the New York State Reliability Council described how the New York electric system is operated to maintain reliability and some of the challenges presented when renewable energy sources are increased significantly.  In my article on the presentation, I noted that the New York reserve margin will have to increase to over 100% relative to the current reserve margin of about 20%.  In other words, in order to ensure that current reliability standards are maintained the amounts listed in the previous paragraph would have to be doubled.

Conclusion

In my initial comments to RGGI on the third program review I made the point that the most important planning consideration to keep in mind is that CO2 control is different than sulfur dioxide, nitrogen oxides and particulate matter because there are no cost-effective retrofit controls available for existing facilities.  The data show that fuel switching has been the primary reason for the observed emission reductions in the RGGI states.  Once the facility has changed to a lower emitting fuel the only options at a power plant are to become more efficient and burn less fuel or stop operating all together.  While it is easy for the commenters to say that would be a good thing the reality is that the real impacts of a blackout caused by unavailable generating resources would be much greater than the alleged impacts of global warming.  I concluded that if it ever comes to the point that allowances are unavailable to operate that could threaten reliability, so it is imperative that RGGI never tighten the cap so low that affected sources are unable to operate due to unavailable allowances. 

With respect to the comments demanding that a zero-emissions trajectory by a certain date it is clear that they are ignoring the performance of RGGI to date.  In my initial comments I showed that the RGGI investments to date are only directly responsible for less than 5% of the total observed reductions since RGGI began in 2009.  Also note that the cumulative annual RGGI investments are $2,795,539,789 and that means that the cost per ton reduced is $857.74.    If the RGGI states have to rely on RGGI investments to make the annual 7,143,044 ton reduction needed, that cost per ton rate would mean an annual cost of $6.1 billion.

As the RGGI states embark on another program review process I hope that they will ignore the calls for emission caps consistent with an aspirational emissions reductions target.  It is also important that they consider the actual results of the program to date.  The fact is that any emissions trading approach for CO2 has to acknowledge that there are limited options for cost-effective reductions and that most of the observed RGGI state reductions have not been due to the RGGI program.  Because of the limited options available and relative ineffectiveness of RGGI investments it is absurd to establish the future emissions caps based on zero emissions by 2035.  That could only lead to reliability issues when affected sources run out of allowances to operate but are still needed to run to keep the lights on.

The Regional Greenhouse Gas Initiative (RGGI) is a carbon dioxide control program in the Northeastern United States.  One aspect of the program is a program review that is a “comprehensive, periodic review of their CO2 budget trading programs, to consider successes, impacts, and design elements”.  This post describes my comments at the start of the third program review public participation process.

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 is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia 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.” 

Proponents tout RGGI as a successful program because participating states have “cut carbon pollution from their power plants by more than half, improved public health by cutting dangerous air pollutants like soot and smog, invested more than $3 billion into their energy economies, and created tens of thousands of new job-years”.  Others have pointed out that RGGI was not the driving factor for the observed emission reductions.  My work supports that conclusion and points out that the cost-effectiveness of the investments from this carbon tax reduce CO2 emissions at a cost of $858 per ton which is far greater than the social cost of carbon metric.  In other words, this is not a cost-effective way to reduce CO2 emissions.

Third Program Review

According to the program review link on the RGGI website:

The RGGI states completed the First Program Review in February 2013 and completed the Second Program Review in December 2017, resulting in the 2017 Model Rule. Now the states have initiated the Third Program Review to consider further updates to their programs.

On February 2, 2021, the RGGI states released a statement announcing the plan for the Third Program Review, and in Summer 2021 the states released a preliminary timeline for conducting the Third Program Review. Note that this timeline is subject to change and may be revised over time.

To support the Third Program Review, the states will:

• • • Conduct technical analyses, including electricity sector modeling, to inform decision-making related to core Program Review topics, such as the regional CO₂emission cap.
    • Solicit input from communities, affected groups, and the general public on the Program Review process and timeline, core topics and objectives, modeling assumptions and results, and other policy and design considerations.
    • Convene independent learning sessions with experts and other interested parties on key design elements.

Public participation is a key component of a successful Program Review. The RGGI states will conduct public engagement throughout Program Review, including periodic public meetings and accompanying open comment periods, to share updates and solicit public feedback.

RGGI has released a list of issues to be considered in its Topics for Public Discussion.  The RGGI states are seeking comments on the future size and reduction trajectory of the allowance caps and the allowance bank.  Comporting with the current fad they are also considering environmental justice and equity considerations.  The RGGI program includes auction mechanisms and they have asked for comments on them.  They also asked for comments on the compliance mechanism and the offset program.

In brief, my comments recommend making no changes.  In the next few years, the RGGI allowance market will change to the unprecedented emissions trading situation in which the majority of the RGGI allowances are held by entities who purchased allowances for investment rather than compliance purposes.  No one knows how the market will react and the compliance mechanisms are working well as is so there is no need to change anything at this time.  The purpose of this post is to describe why I believe changes to the allowance cap and reduction trajectory are unnecessary.

I have prepared a simple analysis that projects the margin between allowances available and emissions (Table 1) for a first cut estimate of the RGGI allowance market and compliance requirements.  I downloaded CO2 mass, heat input, and primary fuel use data from the EPA Clean Air Markets Division database from 2009 to 2020 for Acid Rain Program units rather than RGGI program units so that I could include data from New Jersey and Virginia. 

While Table 1 lists totals for five categories of fuel use: natural gas, coal, residual oil, diesel oil, and other fuels, it is instructive to look at a breakdown of the fuels over time.  Table 2 lists the CO2 mass, heat input and calculated CO2 rate (lbs/hr) by fuel category for the combined nine states that have been in RGGI since 2009, New Jersey and Virginia.  The final row lists the percentage change between the first three years of RGGI and the latest three years.  In nine-state RGGI CO2 mass is down 39%, heat input is down 28% and the CO2 rate is down 16%.  However, the fact that the CO2 rates for New Jersey and Virginia are down more than the RGGI states indicates that the economics of fuel switching to natural gas is the primary reason that CO2 emissions have decreased as observed in the RGGI region. 

Table 1 lists the allowance cap and adjusted cap from 2009 to 2030 in the first three data columns.  The observed CO2 mass and heat input totals for the five fuel categories are in the last columns.  Starting in 2021, the estimated total allowances available expected at the end of each year are listed.  The 2021 value is based on the latest Potomac Economics  report on the secondary market report.  From a compliance standpoint the key parameter is the margin between the allowances available and the emissions.  For each year subsequent to 2021 the allowances available equals the previous year allowances minus that year’s emissions plus the allowances from the adjusted cap through 2025 and unadjusted cap through 2030.

Based on the observation that fuel switching is the primary CO2 reduction methodology to date, the emission projection in the table forces coal, residual oil and diesel oil to go to zero by 2030.  The projected emissions are summed and the margin (difference between allowances available and emissions) is calculated.  Using these assumptions, the allowance bank and the margin continue to decrease suggesting that there will be no major upheavals in compliance strategies or allowance prices.  Of course, projecting future emissions is fraught with difficulties and uncertainties but this approach is probably conservative and actual reductions will likely be greater. 

It is also appropriate to review the emission reduction results of RGGI relative the Social Cost of Carbon (SCC) cost-effectiveness parameter.  I believe that the only reductions from RGGI that can be traced to the program are the reductions that result from direct investments of the RGGI auction proceeds. Information necessary to evaluate the performance of the RGGI investments is provided in the RGGI annual Investments of Proceeds updates.  In order to determine reduction efficiency, I had to sum the values in the previous reports because the reports only report lifetime benefits.  In order to account for future emission reductions against historical levels and to compare values with the SCC parameter, the annual reduction parameter must be used.  Table 3, Accumulated Annual RGGI Benefits, lists the sum of the annual avoided CO2 emissions generated by the RGGI investments from previous reports.  The total of the annual reductions is 2,259,203 tons while the difference between the baseline of 2006 to 2008 compared to 2019 emissions is 72,908,206 tons.  Therefore, the RGGI investments are only directly responsible for less than 5% of the total observed reductions since RGGI began in 2009.  Also note that the cumulative annual RGGI investments are $2,795,539,789 and that means that the cost per ton reduced is $857.74.

Based on comments in previous program reviews there will undoubtedly be calls to make the allowance cap “binding” that is to say force emission reductions to meet a particular emission reduction trajectory.  While the projections above do not reduce emissions as much as the arbitrary 3% reduction target from the previous program review, there are potential consequences if a more stringent reduction is mandated. 

The most important consideration to keep in mind is that CO2 control is different than sulfur dioxide, nitrogen oxides and particulate matter because there are no cost-effective controls available for existing facilities.  As the data show, fuel switching is the primary reason for the observed emission reductions but once the facility has changed to a lower emitting fuel the only options at a power plant is to become more efficient and burn less fuel or stop operating all together.  Fuel costs are a major factor affecting the price of generation so keeping that price as low as possible to improve competitiveness has always been a priority objective.  Consequently, it is unlikely that this could be a source of many future reductions. If it ever comes to the point that allowances are unavailable to operate that could threaten reliability, so it is imperative that RGGI never tighten the cap so low that affected sources are unable to operate due to unavailable allowances.

Theory suggests that as the market gets tighter that the allowance price will rise.  If the allowance price exceeds the Cost Containment Reserve trigger price, then allowances equal to 10% of the cap will be released to the market.  Because that is greater than the 3% reduction target, that suggests that discouraging a tight market supports greater emission reductions.

Conclusion

As the RGGI states embark on another program review process I hope that they will consider the actual results of the program to date.  RGGI has demonstrated that a cap-and-auction emissions trading program can be set up and work well.  However, the fact is that any emissions trading approach for CO2 has to acknowledge that there are limited options for cost-effective reductions.  I believe that political considerations have diluted the effectiveness of RGGI investments for emission reductions so that the investments are not cost effective relative to the social cost of carbon value of reductions. 

I believe that the goal of RGGI should be to balance the allowance cap with observed emissions so that the allowance bank is only used for year-to-year variations in weather-related excess emissions.  Over time as RGGI investments fund zero-emission energy sources it may become necessary to adjust the emission reduction trajectory but that should be based on observations and not model projections.  If this recommended approach is chosen then the RGGI program can continue to operate without threatening reliability and continue to produce revenues for the RGGI states.

The Regional Greenhouse Gas Initiative is a carbon dioxide control program in the Northeastern United States.  Starting in January 2009 the program is now in its fifth three-year compliance period.  This technical post explains why the ownership of allowances held in this compliance period will be unique and how that may be a problem.

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 is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia 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.” 

Proponents tout RGGI as a successful program because participating states have “cut carbon pollution from their power plants by more than half, improved public health by cutting dangerous air pollutants like soot and smog, invested more than $3 billion into their energy economies, and created tens of thousands of new job-years”.  Others have pointed out that RGGI was not the driving factor for the observed emission reductions.  My work supports that point and points out that the cost-effectiveness of the investments from this carbon tax reduce CO2 emissions at a cost of $858 per ton which is far greater than the social cost of carbon metric.  In other words, this is not a cost-effective way to reduce CO2 emissions.

I first became involved with emissions trading pollution control programs at the beginning of the Acid Rain program in 1995.  That program introduced a system of allowance trading that uses market-based incentives to reduce pollution.  The Acid Rain Program is considered a success because it delivered greater emissions reductions at a lower cost than expected.  I think the success caused a problem inasmuch as nowadays emissions trading programs of any form are considered the best approach whatever the circumstances.  First and foremost, trading programs for CO2 have fewer control options.  In the Acid Rain Program there were compliance options such as add-on controls at the affected sources and more fuel-switching options than are available to reduce CO2 emissions.  For existing sources the main control approaches are fuel switching and running less.  Also, with respect to RGGI the idea that a “little” tweak to auction the allowances rather than award them based on past operations presumed that RGGI would get similar results.

Rather than awarding allowances to affected sources the RGGI allowances are made available at quarterly auctions.  Anyone who meets the financial requirements is eligible to participate in the auctions.  Affected sources are required to surrender allowances equal to half their annual emissions at the end of the first and second years of the compliance period and then surrender allowances to cover the rest of their emissions in the compliance period at the end of the third year.  When allowances are awarded to affected sources the excess allowances after reconciliation are surplus and affected sources are confident that they can be sold or traded without impacting compliance.  Thus, the allowance bank in these systems is primarily allowances that have been earned because the affected sources developed a control strategy that exceeded the cap requirements.  Selling all the allowances in auctions enables investors with no compliance obligations to play the market.  That is a big and mostly unacknowledged difference.

I believe there is a major gap between the academic theory how emissions trading works and reality.  Academics believe that the affected sources treat allowances as a storable commodity and a profit center.  However, the reality is that affected sources treat allowances as a compliance instrument and very few companies buy and sell allowances for profit.  Moreover, it is the nature of the generation business today to have a very short-sighted business plan.  As a result, I believe that affected sources only purchase allowances on an expected need basis mostly at the auctions, but also from the market.  Note that this approach means that the size of the banked allowance pool at affected sources is small and used for short-term compliance goals.  At this time the bulk of the current allowance bank consists of allowances purchased by investors without compliance obligations.

During the development of the RGGI rules the possibility that entities could cause anti-competitive behavior was discussed.  In response, RGGI has an independent auditor (Potomac Economics) checking to see if that has been observed and evaluating other aspects of the market (reports here).  In the Environmental Protection Agency market-based pollution control programs there is complete transparency and the ownership of all allowances is available.  However, in RGGI only the independent auditor knows the identity of auction bidders and allowance holders.  In the remainder of this post, I explain why the majority of allowances held by investors rather than affected sources in this compliance period will be unique and how that may be a problem.

Secondary Market Report Allowance Holdings

A couple of months after each auction Potomac Economics prepares a report on the secondary market.  The most recent report on the secondary market summarizes the allowance status of the CO2 allowance holdings at the end of the second quarter of 2021:

• There were 143 million CO2 allowances in circulation.
• Compliance-oriented entities held approximately 52 million of the allowances in circulation (36 percent).
• Approximately 61 million of the allowances in circulation (43 percent) are believed to be held for compliance purposes.

The RGGI market monitor, Potomac Economics, only describes three categories for allowance owners.  Figure 1 from their recent report describes the relationship between the three categories they use.

Figure 1: Classifications of Participant Firms in the RGGI Marketplace

The Potomac Economics description of firms participating in the RGGI market states:

• Compliance-oriented entities are compliance entities that appear to acquire and hold allowances primarily to satisfy their compliance obligations.
• Investors with Compliance Obligations are firms that have compliance obligations, but which hold a number of allowances that exceeds their estimated compliance obligations by a margin suggesting they also buy for re-sale or some other investment purpose. These firms often transfer significant quantities of allowances to unaffiliated firms.

• Investors without Compliance Obligations are firms without any compliance obligations.

These three categories form the basis for two overlapping groups.

• Compliance Entities – All firms with compliance obligations[1], and their affiliates[2]. Combines the first and second of the above categories.
• Investors – All firms which are assessed to be purchasing primarily for investment rather than compliance purposes. Combines the second and third of the above categories.

[1] Before New Jersey announced on June 17, 2019 that it would participate in RGGI beginning in January 2020, firms owning Budget Sources in New Jersey but not in currently Participating States were not treated as compliance entities. However, since the announcement, such firms are treated as compliance entities in our reports.

[2] Affiliates are firms that: (i) have a parent-subsidiary relationship with a compliance entity, (ii) are subsidiaries of a parent company that has a large interest in a compliance entity, (iii) have substantial control over the operation of a budget source and/or responsibility for acquiring RGGI allowances to satisfy its compliance obligations.

The assessment of whether a compliance entity holds a number of allowances that exceeds its compliance obligations by a margin that suggests they are also buying for re-sale or some other investment purpose is based on: (a) the entity’s forecasted share of the total compliance obligations for the entire RGGI footprint through 2026, (b) the total number of allowances in circulation, and (c) consideration of the pattern of the entity’s allowance transfers to unaffiliated firms versus affiliated firms. Since the designation of a compliance entity as an investor is based on a review of its transactions and holdings, the designation of a particular firm may change over time as more information becomes available. Therefore, some of the quantities in this report may not match previous reports because of changes in the classification of particular firms.

The number of allowances that are believed to be held for compliance purposes includes 100 percent of the allowances held by compliance-oriented entities and a portion of allowances held by other compliance entities (i.e., entities with compliance obligations that are not included in the compliance-oriented category).

The anonymity of the allowance holders raises a couple of issues.  In the first place, the classification of the owners is subjective and has not been independently reviewed so the classifications might not reflect the likely behavior of the owners.  There also is the possibility of another category of allowance holders.  Potomac Economics presumes that the all the allowances are held by investors who would be willing to sell their holdings if the price was right.  However, if there are owners who regard the RGGI allowances as carbon offsets they would not be willing to sell at any price.  Given the opaque ownership information I have no idea whether there could be enough offset holders to affect the market.

Projected Allowance Holdings

In the fifth RGGI compliance period allowance holdings ownership will become an issue.  In order to illustrate possible scenarios, I estimated the allowances that might be held by entities holding them for compliance purposes and investors with no compliance obligations through the end of the compliance period in 2023.  RGGI does not provide a consolidated source for the allowances in circulation data listed in the Potomac Economics reports.  Because I have been unable to replicate the numbers and the discussion of the calculations is so complicated, I have prepared a documentation report if anyone is inclined to find out how the following numbers were derived.

In brief, I used the second quarter 2021 Potomac Economics allowances in circulation and allowances held for compliance purposes combined with the auction for the third quarter 2021 report that provided an update of the allowances in held for compliance purposes.  For the rest of the auctions, I used the estimated adjusted allowance allocations.  The biggest question mark is the number of allowances that are allocated to states but not put in the allowance auctions.  There are CO2 emissions data available for the first two quarters of 2021 and I used those data to project future emissions.

I prepared three scenarios of the status of the number of allowances available to entities with compliance obligations at the end of 2023.  In all the scenarios I assume that all the auctioned allowances are purchased by compliance entities.  The first scenario assumes constant emissions consistent with the first two quarters of 2021 and allowances allocated to auctions are reduced consistent with the ratio of total allowances available to allowances auctioned in 2020.  In that scenario compliance entities will have to purchase 20 million allowances from investors without compliance obligations to meet their compliance requirements in the fifth compliance period.  The second scenario assumes that all the allowances allocated to each year are auctioned off with the same emission assumption.  In that case, the compliance entities will have to purchase 6 million allowances from investors without compliance obligations to meet their compliance requirements.  Of course, projecting future emissions is difficult but important to the results.  The third scenario reduced emissions in 2022 and 2023 by 3%, consistent with the allowance allocation reductions.  In that scenario compliance entities still have to purchase nearly 19 million allowances for investors without compliance obligations to meet their compliance requirements.

Cost Containment Reserve

There are factors that could significantly change the allocation results.  Additional allowances can be added to the auctions.  The RGGI states have established a Cost Containment Reserve (CCR), consisting of a quantity of allowances in addition to the cap which are held in reserve. These are sold if allowance prices exceed predefined price levels, so that the CCR will only trigger if emission reduction costs are higher than projected. The CCR is replenished at the start of each calendar year.  The CCR trigger price is $13.00 in 2021 and will increase by 7% per year thereafter. The size of the CCR is 10% of the regional cap each year.  If the auction price triggers the CCR in 2021 then an additional 11,976,778 allowances will be added.  In 2022 11,617,475 allowances and in 2023 11,268,951 allowances will be added if the CCT trigger price is exceeded.  Of course, if additional states join the program, then the allowance allocations will increase.  Finally, if investors without compliance obligations purchase allowances that makes it that much more difficult for affected sources to purchase allowances needed for compliance.

Discussion

In the background section I explained that the allowance bank in the RGGI cap-and-auction program is different than the allowance bank in traditional cap-and-trade programs.  At this time 54% of the allowances in the bank are held by investors without compliance obligations.  If the CCR is not triggered, at the end of the fifth compliance period it is likely that the affected sources will have to obtain allowances from entities who purchased the allowances as an investment.  This is unprecedented.

During the development of the implementing RGGI regulations the Integrated Planning Model was used to predict how the market would act.  One of the bigger problems with the model results is that the model had perfect foresight.  It knew how many allowances would be needed for its estimates of emissions and projected that affected sources would rationally act in their best interests with that information by, for example, purchasing allowances early to cover shortfalls later in subsequent compliance periods.  However, affected sources don’t know what their future emissions will be and don’t purchase allowances except on a shorter time horizon.  Throw in the vested interests of investors and we cannot possibly expect that the market will behave “perfectly” as predicted in the model.

One other aspect of the modeling that was not addressed was the relationship between compliance entities and investors without compliance obligations.  No market-based pollution control program has ever reached the point where non-compliance investors owned most of the banked allowances.  Table 1 estimates when affected sources that keep allowances in hand to cover emissions will need to go to the investors.  It starts adding allowances and emissions to the current allowance ownership categories but does not include the allowances surrendered to meet 50% compliance obligation at the end of the first and second years.  Using the assumptions of Scenario 1, the margin between emissions and total allowances for compliance obligations category indicates that affected sources will have to rely on non-compliance entities starting in 2022. 

I think that the investors without compliance obligations are in for a windfall.  At some point it is inevitable that affected sources are going to have to purchase allowances from these investors. It is naïve to expect that their selling price will be anything less than near the CCR trigger price because those investors don’t have to sell until their price is met but affected sources will have to buy whatever the cost.  This will reduce societal benefits.  For example, consider the Quarter 3 2021 auction. The closing price for 22,911,423 allowances was $9.30. which earned the RGGI states $213,076,234 which will be invested for “reinvestment in strategic energy and consumer programs”.  Compliance Entities purchased 52 percent of the allowances sold so non-compliance entities ended up with 10,997,483 allowances.  At the end of the fifth compliance period if the allowance market price is $14.85, just under the CCR trigger of $14.88, and compliance entities have to purchase allowances for compliance then the profit for the investors would be $61,036,031. None of those funds will go toward strategic energy and consumer programs.

It will be fascinating to see how this plays out.  I expect that allowance prices will increase when this ownership shift occurs but will they increase enough to trigger the CCR and add allowances to the system?  If allowances are added to circulation, it will delay the leverage that investors without compliance obligations have on affected sources who need allowances to operate.  At this time, it appears to be extremely unlikely that the CCR will be triggered in 2021.  Given the large gap in prices it might not even be triggered in 2022 but given that affected sources will have to go to the market to purchase allowances necessary to cover emissions triggering the CCR is more likely.  I frankly will be surprised if the CCR is not triggered in 2023.  If that happens allowance prices will be over $14.88, 11,268,951 allowances will be added to circulation, and, assuming emissions decrease by 3% per year, the allowances available to the affected sources would approximately equal the compliance obligation.

The biggest unknown in all this is future emissions.  The primary CO2 reduction mechanism is fuel switching and the original nine states in RGGI have already switched fuels at many sites.  I have no experience with Virginia’s emissions so there might be a possibility of significant fuel switching and lower emissions.  In New York the retirement of 2000 MW of nuclear generating capacity will surely increase state CO2 emissions.  The important takeaway is that the worst-case situation is if there are insufficient allowances that affected sources will be unable to run.  In theory, when there is a shortage of allowances the prices will go up and trigger additional allowances from the CCR.

Conclusion

This post explains that RGGI is approaching the situation where the majority of allowances will be held by investors rather than affected sources.  Speaking as an investor, I purchased allowances in auction 40 in June 2018 and sold them earlier this year when I needed the money, I would certainly be setting an “ask” price close to the CCR trigger price.  Investors who have held on to them for this long can afford to wait a couple of more years when affected sources will have to purchase allowances.  As long as quarterly emissions exceed the allowances available it is only a matter of time until that occurs.  This is a problem because consumers will end up paying the allowance costs that get incorporated into the electric system bid costs but they will not reap any benefits on the difference between the auction cost and the sales cost.

The opaqueness of the RGGI allowance bank makes it necessary to rely on the market monitor to tell us the categories of the allowance holders.  The expectation for all three categories, compliance entities, investors with compliance obligations and investors without compliance obligations, is that allowances will be sold at the right price.  However, if there are owners who regard the RGGI allowances as carbon offsets they would not be willing to sell at any price.  It is not clear that there are any allowance holders in this category but it is possible.  Another question is whether carbon offset allowance holders would have an impact on RGGI emissions.  In my opinion that is unlikely because the scarcity of allowances would drive up the price and trigger the release of additional allowances. 

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.

Because I have a long-standing interest in the Regional Greenhouse Gas Initiative (RGGI), I checked out a Pennsylvania Department of Environmental Protection (DEP) webinar held on August 6, 2020.  I prepared a post describing my impression of the presentation against the reality of my experience with RGGI that caught the attention of Daryl Metcalfe, the Chair of the Pennsylvania House of Representatives Environmental Resources & Energy Committee who asked me to provide testimony at the August 25, 2020 committee meeting regarding RGGI as described here.  Sadly, the plan to join RGGI is still alive.  This post looks at a couple of the most recent claims made by DEP for projected emission reductions. Thanks to a friend for alerting me to the inconsistencies.

I have been involved in the RGGI program process since it was first proposed prior to 2008.  I blog about the details of the RGGI program because very few seem to want to provide any criticisms of the program. I have extensive experience with air pollution control theory and implementation having worked on every cap and trade program affecting electric generating facilities in New York including the Acid Rain Program, Regional Greenhouse Gas Initiative (RGGI) and several Nitrogen Oxide programs.  Note that my experience is exclusively on the industry side and the difference in perspective between affected sources trying to comply with the rules and economists opining about what they should be doing have important ramifications. 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.

Discussion

The DEP website  describing RGGI states: “By participating in RGGI Pennsylvania will reduce climate pollution from carbon emissions by a massive 188 million tons by 2030.”  At the same webpage, DEP further states “Air pollution Reductions: Carbon pollutions – 188,000,000 tons, Nitrogen Oxide pollution – 112,000 tons and Sulfur Dioxide pollution – 67,000”.  This post will compare the CO2 projections to other estimates.

The Pennsylvania Citizens Advisory Council reviews all environmental regulations and makes recommendations.  At the May 19, 2021 the Council addressed the proposed regulation implementing RGGI.  Slide 10 (shown below) of the presentation reports the proposed cap levels for Pennsylvania’s participation in RGGI. The RGGI annual reductions summed from 2022 to 2030 total 19,914,960 tons.  The “massive” 188 million ton reduction is over a different time period including at least 2021 but clearly the RGGI rule is not the primary driver of expected emission reductions. Another way to look at the RGGI reductions is to compare total CO2 emissions baseline for the period 2022-2030 if emissions stayed at the 2020 emissions rate throughout the period (779 million tons) to the total RGGI budget over that period (690 million tons).  In that scenario RGGI will reduce emission by 88 million tons which is just 47% of the reduction claimed by DEP on their website.

The meeting materials for the Citizens Advisory Council also included modeling results which should be the basis for the DEP claims.  They used ICF’s Integrated Planning Model® (IPM) to simulate the power generation system.  The modeling used the “most recent laws, policy changes, inputs & assumptions”.  Note that this model only projects impacts for the power sector and wholesale electric costs, it does not include costs for the economy as a whole.  The model is run for two cases: a reference case (without the RGGI regulation) and a policy case (with the RGGI regulation) from 2021 going out to 2030.  (I believe that 2021 is the starting point for the summary totals listed in the spreadsheets.)

The IPM results can be used to determine the effect of RGGI on emissions.  The Pennsylvania CO2 emissions baseline for the period 2021-2030 using the the IPM Reference Case is 679 million tons.  The most recent ICF Policy Case modelling results report Pennsylvania CO2 emissions for the period 2021-2030 to be 582 million tons which yields a planned reduction due to RGGI participation of 97 million tons or an overall reduction of 14.3% which is just over half of the 188 million ton reduction claimed by DEP.  Even considering the total RGGI reductions within all the RGGI states, the results of the two ICF Models are only estimated to reduce CO2 emissions by 75 million tons (4.6%) in the 12 RGGI States.  In fact, IPM projects that CO2 emissions will increase in the other states by 22 million tons when Pennsylvania joins RGGI.  The ICF Case results do not report estimated emissions for either Nitrogen Oxides or Sulfur Dioxide so I could not check those claims.

The slide presentation presents six 2021 modeling results key takeaways that are listed below with my comments in italics:

1: Confirmed Starting Allowance Budget: Original allowance budget confirmed at 78 million tons of CO2.  The final RGGI agreement for participation established the budget shown in slide 10 above.

2: Significant Avoided Emissions through RGGI participation: All modeling shows that PA would experience significant CO2 reductions as a RGGI participating state.  The total RGGI budget from 2021 to 2030 is reduction is 690 million tons (assume 2020 emissions for 2021 budget) and the IPM reference case for that period totals 679 million tons which means that the RGGI rule itself will only reduce CO2 emissions 11 million tons when 2021 emissions are included.

3: Sharp Decline in Coal Generation by 2025: Overall PA coal generation decreases significantly with or without RGGI participation.  In other words, RGGI has little to do with all the CO2 emission reductions associated with changes in coal generation.  The IPM modeling results for fuel consumption shows that by 2030 RGGI has no projected effect on coal generation.  The results shown also suggest that the projections should be used cautiously because it shows an idiosyncrasy of IPM.  Note that in 2020 the projected emissions are different in Pennsylvania even though the regulation does not take effect until 2022.  I am pretty sure that is because IPM has perfect foresight and presumes that the affected power plants will act in their best interests knowing exactly what will happen in the future.  That modeling assumption is wrong on so many levels that I could do a post just addressing the implications of that.

4: Limited Impact on Natural Gas Generation: Minor overall impact on natural gas generation with RGGI participation.  The IPM modeling results for fuel consumption predicts that natural gas usage is projected to be smaller from 2022 to 2030 when Pennsylvania adopts RGGI.  That runs counter to what I would expect.  The only thing I can think of is that IPM thinks the added RGGI carbon tax will make Pennsylvania natural gas generation more expensive than power generated outside the state so imports will increase but that is a wild guess.  The modeling does project lower regional energy use so that probably is the main reason.

5: PA Remains a Leading Energy Exporter: Updated modeling showing a smaller impact on exports due to RGGI participation.  No comment.

6: Similar Minimal Impact on Electricity Prices Compared to Past Modeling: PA’s wholesale power prices are projected to be slightly higher in the policy case, as seen with the 2020 modeling. This does not account for future program investments, which can reduce prices.  RGGI is a tax.  The auction for allocations will generate money that can be used for “program investments” which proponents claim will reduce prices.  If the past results from RGGI states is any guide, the benefits claims will be biased to ensure that there are cost savings.  RGGI is supposed to be a GHG emission reduction program to save society from all the purported effects of the existential threat of climate change.  In order to “prove” cost effectiveness, advocates use the social cost of carbon metric.  Note however, that New York’s record of investments relative to the metric has been dismal.  I have shown that the New York State Energy Research & Development Authority RGGI Status Report does not include a single program using auction proceeds that reduces carbon dioxide more cost efficiently than today’s social cost of carbon.  In other words their programs are not cost-effective.

Conclusion

US Alternative Energy

The DEP website claims for RGGI emission reductions, health benefits, or economic benefits are not supported by the reported ICF model results.  For one thing IPM modeling does not estimate health benefits and economic benefits and even though the model can estimate SO2 or NOx emissions no data was provided. While many questions cannot be answered by the very limited modeling results released by DEP, it is clear that their claims for CO2 emission reduction benefits are not supported by the results that are available to the public.

In addition, the modeling results indicate that most of the projected CO2 reductions will occur even if RGGI is not implemented.  It is not clear if it is in the best interests of the state to impose a new tax and bureaucratic program with such poorly defined benefits.