RGGI Third Program Review Listening Session 5 October 2021

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.

RGGI Third Program Review

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.

RGGI Secondary Allowance Market in the Fifth Compliance Period

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. 

Table 1: Fifth Compliance Period Projected Allowances and Emissions – Scenario 1
  AllowancesAllowances forConstantCompliance
YearQuarterin CirculationCompliance PurposesEmissionsMargin
2021Q2143.061.049.911.1
2021Q3165.976.374.91.4
2021Q4188.699.099.9-1.0
2022Q1210.5120.9124.9-4.0
2022Q2232.5142.9149.9-7.0
2022Q3254.5164.9174.9-10.0
2022Q4276.5186.9199.9-13.1
2023Q1297.8208.2224.9-16.8
2023Q2319.1229.5249.9-20.4
2023Q3340.4250.8274.9-24.1
2023Q4361.7272.1299.9-27.8

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. 

Investment of RGGI Proceeds Report for 2019

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

I have been involved in the RGGI program process since its inception.  I blog about the details of the RGGI program because very few seem to want to provide any criticisms of the program. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

RGGI is a market-based program to reduce greenhouse gas emissions. It has been a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector since 2008.  New Jersey was in at the beginning dropped out for years and re-joined in 2020. Virginia joined in 2021.  According to a RGGI website: “The RGGI states issue CO2 allowances which are distributed almost entirely through regional auctions, resulting in proceeds for reinvestment in strategic energy and consumer programs. Programs funded with RGGI investments have spanned a wide range of consumers, providing benefits and improvements to private homes, local businesses, multi-family housing, industrial facilities, community buildings, retail customers, and more.” 

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

Emissions Reductions

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

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

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

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

Cost Efficiency

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

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

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

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

Conclusion

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

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

Updated Comments on Pennsylvania Participation in RGGI

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.

Update on NYSERDA RGGI-Funded Programs

The New York State Energy Research and Development Authority (NYSERDA) report New York’s RGGI-Funded Programs Status Report – Semiannual Report through June 30, 2020 (“Status Report”) describes the programs New York has set up to invest the proceeds from the Regional Greenhouse Gas Initiatives.  In this post I update an earlier evaluation whether the investments made from the RGGI auction proceeds are cost effectively reducing CO2. 

I am a retired air pollution meteorologist who has been involved in the RGGI program process since its inception sometime in 2004.  I have written extensively on RGGI because the program demonstrates practical difficulties with greenhouse gas control programs.  The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

RGGI is a market-based program to reduce greenhouse gas emissions. It is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.  According to a RGGI website: “The RGGI states issue CO2 allowances which are distributed almost entirely through regional auctions, resulting in proceeds for reinvestment in strategic energy and consumer programs. Programs funded with RGGI investments have spanned a wide range of consumers, providing benefits and improvements to private homes, local businesses, multi-family housing, industrial facilities, community buildings, retail customers, and more.”  New Jersey left RGGI in 2012 and re-joined RGGI in 2020.  Virginia joined in 2021 and the Governor but not the Legislature of Pennsylvania want to join in 2022.

RGGI has been touted as a successful example of a “cap and dividend” pollution control program.  New York State has been involved in the program since its inception and claims it yields environmental, health, and economic benefits.  Advocates for carbon pricing schemes assume that the investments from the proceeds are worthwhile so I will evaluate that presumption in this article.

In order to determine the value of emission reduction investments I will use the Social Cost of Carbon (SCC).  This is supposed to represent the future cost impact to society of a ton of CO2 emitted today.  It is a policy tool that attaches a price tag to the long-term economic damage caused by one ton of carbon dioxide, hence the cost to society.  It was extensively by the Obama Administration to justify the Clean Power Plan, has been proposed for use in the New York Independent System Operator carbon pricing initiative and is included in New York’s Climate Leadership and Community Protection Act.  At the end of 2020, the New York Department of Environmental Conservation (DEC) released a guidance document that provides social cost values for carbon dioxide, methane, and nitrous oxide for use by State agencies along with recommended guidelines for the use of these and other values by State entities.

Therefore, it is entirely fair to use the New York value of carbon as a metric to determine if the investments made from carbon pricing income are cost effectively reducing CO2 as needed to meet the CLCPA targets. New York guidance recommends using a 2% discount rate and establishes a 2021 value of $127 per metric ton.  If New York investments reduce CO2 emissions at a rate below that metric, then the investment will be less than the social costs to society of the ton of CO2 removed from the New York energy system.  If it is greater than $127, then the pollution reduction costs are greater than the cost to society and the investments are not a cost-effective solution.

NYSERDA RGGI Program Status

The key table in the Status Report is Table 2 Summary of Expected Cumulative Annualized Program Benefits through 30 June 2020.  It provides costs, energy savings, electricity savings or renewable energy production, greenhouse gas emission savings and the calculated cost benefit ratio.  The $/ton reduced metric is presented on an annual basis and as expected lifetime savings.  In order to determine if the NYSERDA RGGI investments cost-effectively reduce CO2 emissions necessary for the CLCPA targets, the annual numbers must be used.  More on this later. 

The NYSERDA RGGI Status Report Table 2 – Ranked Cost Benefit Ratio Data table lists all the programs in the NYSERDA report ranked by the annual cost benefit ratio with just that parameter.  It lists 20 programs with associated CO2 reduction benefits and another 18 programs with no claimed CO2 reductions.  Two of the 20 programs and another is close enough meet the $127 New York Value of Carbon metric for cost effective investments.  Seventeen programs and the 18 programs with no claimed reductions do not meet this cost effectiveness standard.  Table 4 in the Status Report notes that the NYSERDA investments spent through June 30, 2020 total $1,139.8 million.  In Table 2 of the Status Report the total incentives and total associated costs for the three programs that are cost effective total 12.3 million.  In other words, 1.1% of the NYSERDA RGGI funds cost-effectively reduce CO2 emissions.

The Status Report describes the programs and after reading the summaries I am not impressed and in fact I question the results.  The most cost-effective program, Multifamily Performance Program Assessments in the Green Jobs Green New York sector, had a cost effectiveness value of $61/Ton CO2e.  The program provides financing and co-funding for comprehensive energy assessments and the development of an Energy Reduction Plan, serving market-rate and low- to moderate-income residential buildings with five or more units to increase adoption of clean energy in NYS. Accomplishments.  According to the summary table, they managed to do a total of 316 assessments through December 2018 that resulted in 61,795 residential units served with installed measures for a cost of $3.3 million in “total incentives” and another $1.4 million in “total associated costs”.  Summing the incentives and associated costs and dividing by the 61,795 residential units yields $76.06 per unit.  The summary indicates that this is the cost of the comprehensive energy assessment and development of a reduction plan and that rate per unit is reasonable.  But this also means that the actual costs to implement the energy reduction are not included.  So how did NYSERDA claim any CO2 reduction benefits and what are the chances that the actual CO2 reductions were double-counted?  Finally, note that this program is complete.

There is another concern. A quick perusal of the programs listed with no reduction benefits demonstrates justifiable cynicism of yet another government program controlled by politicians.  The programs range from practical to clear pork barrel.  New York wants to be able to track emissions from generation sources within the State and from imported sources to create “tradable generation attribute certificates”.  Rather than fund the NY generation attribution tracking program through the general fund it is convenient to fund this through RGGI auction proceeds.  The research projects are another segment of funding where there is a justifiable rationale for funding projects that have no reduction benefits short-term because they could lead to long-term reductions.  At the extreme of clearly unjustified funding is the Brookhaven National Laboratory Ion Collider.  I have no idea the tortured logic that was used to justify spending any RGGI funds on this.

CO2 Cost Benefit Ration Annual vs. Expected Lifetime Savings

Earlier I noted that in order to determine if the NYSERDA RGGI investments cost-effectively reduce CO2 emissions necessary for the CLCPA targets, the annual numbers must be used.   While there may be a rationale to include the lifetime expected cost benefit savings relative for financial comparisons, in order to determine CO2 reduction cost-effectiveness for the CLCPA targets or the New York Value of Carbon it is inappropriate.   I did a post on the New York Clean Energy Dashboard last year that made that point and heard from the Senior Manager of Communications at NYSERDA claiming that when comparing clean energy program investments to the Social Cost of Carbon, the more appropriate comparison point is the expected lifetime value.  I responded with an explanation why that was untrue but did add the distinction between financial comparisons and carbon social costs to my post. 

The New York Value of Carbon Guidance includes a section entitled “Estimating the emission reduction benefits of a plan or goal” with an example that states:

The net present value of the plan is equal to the cumulative benefit of the emission reductions that happened each year (adjusted for the discount rate). In other words, the value of carbon is applied to each year, based on the reduction from the no action case, 100,000 tons in this case. The Appendix provides the value of carbon for each year. For example, the social cost of carbon dioxide in 2021 at a 2% discount rate is $127 per metric ton. The value of the reductions in 2021 are equal to $127 times 5,000 metric tons, or $635,000; in 2022 $129 times 10,000 tons, etc. This calculation would be carried out for each year and for each discount rate of interest.

This example makes the same mistake.  The Integrated Working Group damages approach value is the net present benefit of reducing carbon dioxide emissions by one ton.  The calculation methodology determines that value from the year of the reduction out to 2300.  It is inappropriate to claim the benefits of the annual reduction over any lifetime.  Consider that in this example, if the reductions were all made in the first year the value would be 50,000 times $127 or $6,350,000, but the guidance approach estimates a value of $37,715,000.

When I was developing a response to NYSERDA’s communications manager, I contacted Dr. Richard Tol, Professor of the Economics of Climate Change at Vrije Universiteit Amsterdam and a Professor of Economics at the University of Sussex who has direct experience estimating the social cost of carbon.  I asked the following question:

There is a current proceeding where NYSERDA is claiming that their investments are cost-effective but they use life-time benefits.  I concede that the ratepayer cost-benefit calculation should consider the life-time avoided costs of energy and can see how that reasoning might also apply to the social cost of carbon.  However, in the following definition, SCC is the present-day value of projected future net damages from emitting a ton of CO2 today, I can interpret that to mean that you shouldn’t include the lifetime of the reduction.  Am I reading too much into that?

He graciously responded that the use of life-time savings or costs is inappropriate in the following:

Dear Roger,

Apples with apples.

The Social Cost of Carbon of 2020 is indeed the net present benefit of reducing carbon dioxide emissions by one tonne in 2020.

It should be compared to the costs of reducing emissions in 2020. The SCC should not be compared to life-time savings or life-time costs (unless the project life is one year).

Stay healthy,

Richard

Dr. Richard S.J. Tol

MAE Professor Department of Economics,

Room 281, Jubilee Building

University of Sussex, Falmer, Brighton BN1 9SL, UK

I have contacted DEC about the Value of Carbon example error.  The DEC response noted that “we will be making additional updates to the Value of Carbon guidance and this would be one update that could be addressed”.  In my correspondence with NYSERDA I offered the opportunity to discuss why the lifetime savings cost effectiveness metric is appropriate for social cost comparisons but never received an answer.

Conclusion

According to the NYSERDA 2003-2017 Patterns and Trends document the 2017 estimated New York CO2 emissions from fuel combustion were 157 million metric tons.  The total annualized cost benefit ratio ($ per ton of CO2 reduced from NYSERDA’s RGGI investments is $587 per ton.  If New York has to rely on NYSERDA to reduce fuel combustion emissions to zero for the CLCPA, then the cost would be $91.948 billion.

NYSERDA’s continued use of the $ per CO2 expected lifetime savings metric without qualification that it is inappropriate to use to compare to any social cost of carbon metric or for comparison of reductions necessary for the CLCPA targets is disappointing at best.  There is no excuse to continue this charade.  Of course, the fact that only 1 .1% of the NYSERDA RGGI funds cost-effectively reduce CO2 emissions programs suggest that this would be an embarrassment.

The CLCPA has set three greenhouse gas emission targets: 40% reduction in GHG emissions by 2030, 85% reduction in GHG emissions by 2050, and 100% carbon-free Electricity by 2040.  The ultimate problem is there is no requirement to determine whether these goals are financially possible.  The NYSERDA performance is not encouraging.

Another Cautionary RGGI Tale from New York

The Regional Greenhouse Gas Initiative (RGGI) is likely to generate over $149 million in fiscal year 2021-2022 for New York State investments to support comprehensive strategies that best achieve the RGGI greenhouse gas emissions reduction goals pursuant to 21 NYCRR Part 507.  This post describes the comments I submitted for the New York RGGI Operating Plan Amendment for 2021.

I have been involved in the RGGI program process since its inception sometime in 2004.  I blog about the details of the RGGI program because very few seem to want to provide any independent review of the program. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

RGGI is a market-based program to reduce greenhouse gas emissions. It is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.  According to a RGGI website: “The RGGI states issue CO2 allowances which are distributed almost entirely through regional auctions, resulting in proceeds for reinvestment in strategic energy and consumer programs. Programs funded with RGGI investments have spanned a wide range of consumers, providing benefits and improvements to private homes, local businesses, multi-family housing, industrial facilities, community buildings, retail customers, and more.”  Note that New Jersey has re-joined RGGI and Virginia will be joining in 2021.

On December 16, 2020 a stakeholder advisory group meeting was held to provide an overview of the draft operating plan amendment.  Meeting materials included the following:

The presentation provides an overview of the meeting.  The introduction of the operating plan describes New York’s RGGI approach.  Implementation responsibilities are shared by the New York Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA).

NYSERDA’s RGGI Operating Plan is reviewed and revised on an annual basis. The operating plan document represents the 2021 Operating Plan Amendment and provides program descriptions and funding levels for the April 2021-March 2024 timeframe.  NYSERDA regulations include a provision to annually convene a group of stakeholders representing a broad array of energy and environmental interests. This group advises NYSERDA regarding strategies to best utilize RGGI funds. NYSERDA holds an open meeting of the stakeholder group each year, inviting input on how to achieve greater scale of implementation, advance activities that realize benefits in disadvantaged communities, expand private investments and partnerships, and address barriers to program success.

The draft Amendment explains that New York State invests RGGI proceeds to support comprehensive strategies that best achieve the RGGI greenhouse gas emissions reduction goals pursuant to 21 NYCRR Part 507.  The programs in the portfolio of initiatives are designed to support the pursuit of the State’s greenhouse gas emissions reduction goals by:

      • Deploying commercially available energy efficiency and renewable energy technologies;
      • Building the State’s capacity for long-term carbon reduction;
      • Empowering New York communities to reduce carbon pollution, and transition to cleaner energy;
      • Stimulating entrepreneurship and growth of clean energy and carbon abatement companies in New York; and
      • Creating innovative financing to increase adoption of clean energy and carbon abatement in the State.

Proposed Programs

In my  comments , I evaluated the programs proposed for the draft Amendment. NYSERDA’s New York State Regional Greenhouse Gas Initiative-Funded Programs status reports were used to estimate the ability of these program to reduce CO2.  The latest report, Semiannual Status Report through December 31, 2019 includes a summary of expected cumulative annual program benefits.

Operating Plan Table 1 lists those programs that are funded going forward in the draft Amendment and includes annual program benefits for existing programs.  There are 18 proposed programs that have been allotted funds for the revised FY20-21 through FY23-24 budget years.  I classified them into five categories and provided summaries of the programs themselves in 2021 RGGI Operating Plan Program Descriptions.

The programs in the first two categories are expected to produce emission reductions.  Eight programs were funded before 2020 and have estimates of the cost to reduce CO2.  They are allocated $416.2 million or 69% of the budgeted funds and, based on the NYSERDA report estimates, could reduce CO2 emissions just over 807,000 tons.  This translates to a expected CO2 cost reduction efficiency of $516 per ton.  Two new programs are similar to exiting programs and using the overall cost efficiency for the existing programs could reduce CO2 emissions another78,431 tons.

The next two categories are existing and new programs that do not directly reduce CO2 emissions. There is one existing program and four existing administrative line items totaling $76.8 million or 13% of the total that do not directly reduce CO2 emissions. It is disappointing that two new proposed programs totaling $14 million or 2% of the total that will also not directly reduce CO2 emissions.  New York’s proportion of line items that do not directly reduce CO2 emissions is the highest of any RGGI state.

Finally, the draft amendment includes a program that will increase CO2 emissions.  The draft Amendment proposes to allocate $52.8 million or 9% of the total budget to the ChargeNY program that will promote plug-in electric vehicle (PEV) adoption by consumers across New York.

Environmental Justice

Clearly the operating amendment funding represents a lot of money.  The Operating Plan amendment for 2021 notes that:

“RGGI programs have and will continue, alongside other state programs, to contribute to economy-wide greenhouse gas emissions reductions and provide benefits to New York’s historically overburdened and underserved communities. NYSERDA’s CO2 Allowance Auction Program regulations reflect the provision of the Climate Leadership and Community Protection Act “that 40%, and no less than 35%, of the overall benefits from the investment of the [CO2 Allowance Auctions] proceeds” will be realized in disadvantaged communities.”

It is entirely appropriate that there should be an emphasis on environmental justice but I have concerns about the State’s approach.

Unfortunately, meeting that goal means even less emphasis on cost effectiveness.  I noted in my comments that the CLCPA and the draft Amendment emphasize support to disadvantaged communities.  Given that all other jurisdictions that have attempted to reduce GHG emissions have increased the cost of energy, it is likely that will be the case in New York too.  Therefore, I think there are two priorities to reduce the regressive impact on those who can least afford those increased costs.  Overall, the funding emphasis should be on the most cost-effective GHG reduction programs to lower overall costs.  The exception to that emphasis are programs that directly reduce costs for anyone, regardless of location, who is living in energy poverty or has a disproportionate energy burden.  I worry that the emphasis on disadvantaged communities will hurt energy paupers living outside of those communities, particularly those in rural areas.

A focus on reducing the energy burden of disadvantaged in general and in overburdened and underserved communities in particular is more appropriate than the state’s plans to fulfill a mandate for spending a particular amount in a particular way. In order to address the effect of climate change on dis-advantaged communities adapting and becoming more resilient to extreme weather rather than attempting to mitigate those impacts would also be more appropriate than funding wind and solar projects that have their own environmental consequences.

 Conclusion

The draft Amendment budget total covering fiscal years 2020 to 2024 is over $600 million and is projected to reduce annual CO2 emissions 807,024 tons for a cost efficiency of $744 per ton reduced.  Over 30% of the budget is apportioned to programs or line items that do not directly reduce CO2.

The cost reduction efficiency is $516 per ton for the programs that will directly reduce CO2.  The recently adopted Value of Carbon Guidance recommended a 2020 value of carbon dioxide of $53-421 per ton, with a central value of $125 per ton; a 2020 value of methane of $1,527-6,578 per ton, with a central value of $2,782 per ton; and a value of nitrous oxide of $19,084-140,766 per ton, with a central value of $44,727 per ton.  If we only consider the carbon dioxide values, the cost effectiveness exceeds the purported negative externality costs and that means that the RGGI operating plan programs do not meet this basic cost-benefit test.

Clearly the draft Amendments should put greater emphasis on investments with better cost effectiveness rates or develop programs to bring those costs down.  Moreover, if the costs of the emission reduction programs exceed the purported negative externality costs then it suggests that it would be more appropriate to invest the proceeds elsewhere.  Note that in the future the State is going to have to breakout expected methane and nitrous oxide emission reductions, if any, in order to reflect the full value of RGGI proceeds investments.

There is one final aspect of this that troubles me.  RGGI is an electric sector emissions reduction program.  New York State is already abusing the RGGI objectives with all the programs that produce no CO2 reductions.  I am sure that a detailed review of the programs would uncover funding that should be covered by existing programs and not with RGGI funds.  While it is understandable that RGGI funding will be used to meet the CLCPA dis-advantaged community mandates it will likely further dilute the effectiveness of future reductions.  Funding the ChargeNY program that will promote plug-in electric vehicle (PEV) adoption by consumers across New York will actually increase CO2 emissions and I recommended that those funds be re-allocated elsewhere.  The ultimate problem that the operating plan overlooks is at some point the sources affected by RGGI will be unable to lower their emissions.  In order to meet the RGGI cap zero-emission generating and reductions in load funded by the RGGI proceeds will be needed.  If all the money is distributed elsewhere problems will ensue.

 

RGGI Response to Investment of RGGI Proceeds 2018 Letter

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

I have been involved in the RGGI program process since discussion started on it sometime in early 2004.  I blog about the details of the RGGI program because very few seem to want to provide any criticisms of the program. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

RGGI is a market-based program to reduce greenhouse gas emissions. It is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.  According to a RGGI website: “The RGGI states issue CO2 allowances which are distributed almost entirely through regional auctions, resulting in proceeds for reinvestment in strategic energy and consumer programs. Programs funded with RGGI investments have spanned a wide range of consumers, providing benefits and improvements to private homes, local businesses, multi-family housing, industrial facilities, community buildings, retail customers, and more.”  Note that New Jersey has re-joined RGGI and Virginia will be joining in 2021.

The latest update was released on July 29, 2020.   The Investment of RGGI Proceeds in 2018 report tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. According to the report, the lifetime benefits of RGGI investments made in 2018 include:

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

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

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

Issues Raised in August 3, 2020 Letter

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

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

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

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

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

I noted that the document and press release both state:

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

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

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

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

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

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

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

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

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

Conclusion

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

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

My RGGI Testimony to the Pennsylvania House of Representatives Environmental Resources & Energy Committee

On August 6, I tuned into the Pennsylvania Department of Environmental Protection (DEP) webinar titled “RGGI 101 How it Works and How it Benefits Pennsylvanians” because I have a long-standing interest in the Regional Greenhouse Gas Initiative (RGGI).  I prepared a https://wp.me/p8hgeb-slpost describing my impression of the presentation against the reality of my experience with it 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.  This post summarizes my testimony.

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 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.  I think this background served me well providing the testimony presented.  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 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.”

RGGI started in 2009 and the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont have participated ever since.  New Jersey was included at the start of the program, dropped out and re-joined in 2020.  Virginia recently announced that they would join in 2021.  According to this presentation Pennsylvania is planning to join in 2022.

According to the DEP’s RGGI website,  “Governor Wolf recently signed an Executive Order that directed DEP to begin a rulemaking process that will allow Pennsylvania to participate in the Regional Greenhouse Gas Initiative (RGGI), with the goal of reducing carbon emissions from the electricity sector”.  I know very little about Pennsylvania politics but I did figure out that the Governor is not planning to go through the legislature to have Pennsylvania to join RGGI.  Because Pennsylvania not only has significant coal-fired generation but also mines it, there are significant concerns about the impact of joining RGGI on the continued viability of those resources.

I have never presented testimony before so this was a new experience.  The web page for the Pennsylvania House of Representatives Environmental Resources & Energy Committee lists the transcript and presentations for the witnesses who presented testimony on August 24, 2020.  If you are very bored there is even a video of the testimony of the six presentations.

Testimony

I will summarize my main points in the remainder of this post.  For more detail you can go listen to the presentation or read the  testimony and  slides I submitted.

The first discussion point addressed carbon pricing because ultimately RGGI is a carbon pricing scheme.  I admit that the theory of putting a price on carbon is attractive but there are very real problems associated with implementation.  Unless the carbon price is set across the globe and covers all energy sectors pollution leakage, where a pollution reduction policy simply moves the pollution around the globe rather than actually reducing it, is an inevitable short-coming.  Within the electric generating sector there is a very real problem because power plants have limited control options: switching fuels or operating less.  As a result, generating companies simply treat it as an added cost to doing business which is pretty much the same as a tax.  While proponents call this a cap and dividend program I call it a cap and tax program and because all energy taxes are regressive this will impact those who can least afford additional energy costs.

RGGI proponents claim that it is a success and often cite the observed emission reductions.  As shown in my testimony and previous post, both the PA DEP and RGGI accurately claimed that regional CO2 emissions are down on the order of 50% since 2005, but RGGI had very little to do with it.  The vast majority of the reductions were due to fuel switching from coal and residual oil to natural gas. Because the RGGI price adder is small relative to the fuel cost differential RGGI itself had very little to do with the observed fuel switching.  I believe that the only reductions that RGGI can claim are those that result from the investment of RGGI proceeds.  Using that criterion, RGGI is only responsible for on the order of 5% of the observed reductions.

I also showed that the emission reductions would have a negligible effect on global warming itself.  I found there would be a reduction, or a “savings,” of approximately 0.0011°C by the year 2050 and 0.0023°C by the year 2100 if all Pennsylvania CO2 emissions were eliminated.  To give an idea of how small this temperature change is it is the same as a change in elevation of nine inches or change in latitude of two tenths of a mile.

Finally, I compared the emissions and operational changes of Pennsylvania relative to the nine states in RGGI since 2009 when RGGI started.  Pennsylvania without RGGI has accomplished nearly as much as the nine RGGI states in terms of maintaining fossil generation levels while reducing emissions, improving efficiency, and switching to cleaner fuels.

I concluded that despite the claims made by its proponents, upon close examination RGGI is an inefficient method for reducing CO2 emissions.  The affected sources will treat it simply as a tax.  As a result, that means that the primary impact to the public is a regressive tax.  Fuel switching to Marcellus Shale gas created by Pennsylvania’s fracking revolution was the primary cause of the observed decreases in emissions.  Clearly, Pennsylvania has done more to reduce CO2 in the RGGI states than the RGGI itself and that will continue whether or not Pennsylvania joins RGGI.

Critique of RGGI 101 How it Works and How it Benefits Pennsylvanians

Update:  Correction added for temperature savings interpretation.  Thanks Denis Rushworth.

Because I have a long-standing interest in the Regional Greenhouse Gas Initiative (RGGI), I tuned into the Pennsylvania Department of Environmental Protection (DEP) webinar held on August 6, 2020.  The webinar was titled “RGGI 101 How it Works and How it Benefits Pennsylvanians” and outlined “how participating in RGGI will lower greenhouse gas and other air pollution emissions from electric power plants” and also covered benefits of the program, including health and economic benefits.  This post describes my impression of the presentation against the reality of my experience with RGGI.

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 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.  I think this background served me well commenting on this DEP presentation.  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 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.”

RGGI started in 2009 and the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont have participated ever since.  New Jersey was included at the start of the program, dropped out and re-joined in 2020.  Virginia recently announced that they would join in 2021.  According to this presentation Pennsylvania is planning to join in 2022.

According to the DEP’s RGGI website,  “Governor Wolf recently signed an Executive Order that directed DEP to begin a rulemaking process that will allow Pennsylvania to participate in the Regional Greenhouse Gas Initiative (RGGI), with the goal of reducing carbon emissions from the electricity sector”.  The presentation described this process and explained how the revenues could potentially be invested.

RGGI 101: How it Works and How it Benefits Pennsylvanians

This post will focus on the webinar presentation available at DEP’s RGGI website at the August 6, 2020 RGGI 101 webinar link.  The presentation claimed climate change impacts are happening now in Pennsylvania, gave an overview of RGGI, described how it works, provided information on the DEP’s modeling efforts, claimed that it will benefit “Pennsylvanians and Communities”, talked about plans to invest RGGI revenues and then concluded with plans for the next steps in the process.

Both New York and Pennsylvania rationalize their CO2 emission reduction programs the same way.  First there is a list of bad things that happened followed by claims of changes in the climate.  Clearly the effects were caused by the changes in the climate.  There is never any attempt to attribute just how much of the effect could have been caused by climate as opposed to plain old weather and never any suggestion that the effect of CO2 emissions on climate relative to natural variability is very uncertain.

After the webinar presented those slides, they added a wrinkle that New York has not included yet.  There was a slide that claimed that according to the 2019 Yale Climate National Survey 72% of Pennsylvanians support regulating CO2 as a pollutant.  Personally, I think that a survey get whatever answer the sponsor wants by tuning the questions.  But if DEP wants to play the survey game what about the Gallup poll, taken July 1-23, among U.S. 1,007 adults, that asked respondents, “What do you think is the most important problem facing this country today?”  A plurality, or 30 percent, chose “coronavirus/diseases” as the most important problem, followed by “the government/poor leadership” (23 percent), race relations/racism (16 percent), “unifying the country” (six percent), and “crime/violence” (five percent).  Notably, “climate change/environment/pollution” came at the very bottom of the list, garnering just one percent support.

Slide 6 describes Pennsylvania participation in RGGI.  It graphically shows how five steps of RGGI participation will lead to helping the state combat climate change.  One of the steps says: “Since 2005, RGGI states have significantly reduced their power sector CO2 pollution” beneath a graphic that indicates that there was a 45% reduction.  This statement is an important part of the reason why I think RGGI has not been an unqualified success despite proponent’s claims that it is.

On July 29, 2020 RGGI released their Investment of RGGI Proceeds in 2018 report that tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. That report contains a similar statement: “As a whole, the RGGI states have reduced power sector CO2 pollution over 50% since 2005, while the region’s gross domestic product has continued to grow”.  Both DEP and RGGI make the observed reduction sound like the reductions are due to RGGI.  RGGI did not start until 2009 so the reductions from 2005 until then could not be due to RGGI.

Table 1 lists the total CO2 emissions for the 12-states that have always been in RGGI, the total including PA, NJ and VA, as well as just the PA emissions totals from 2005 to 2018.  The first year of the RGGI program was 2009, when the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont emitted 108,487,823 tons of CO2.  In 2005 emissions from those nine states equaled 147,032,069 tons.  This report was for 2018 and those states emitted 75,177,614 tons of CO2 so my estimate of the reduction since 2005 is 49%.  But 19% of the reductions had occurred by 2008 before RGGI started so clearly some other factor was at play.

Table 1: State-Level CO2 Emissions for Twelve RGGI States 2005 to 2019

9-State 12-State
Year Total PA Total
2005 147,032,069 121,858,351 321,908,874
2006 128,402,332 119,193,505 295,374,145
2007 133,903,150 123,585,266 310,185,905
2008 119,577,750 119,393,275 287,267,461
2009 108,487,823 114,331,904 269,527,189
2010 118,444,437 125,655,768 299,647,928
2011 104,844,813 118,689,447 270,233,082
2012 95,595,518 111,175,907 249,110,371
2013 89,115,999 112,108,370 249,609,392
2014 89,554,562 104,303,446 244,555,455
2015 86,382,080 95,211,399 235,122,647
2016 82,650,554 89,188,551 229,818,881
2017 67,830,311 84,201,372 203,002,123
2018 75,177,614 81,411,494 209,998,758
2019 63,537,644 82,798,637 196,614,413

I have used the EPA’s Clean Air Markets Division emissions data to determine why emissions decreased as shown in the RGGI 12-State EPA Clean Air Markets Division All Program Annual Emissions Data by Primary Fuel Type table.  It is obvious that emissions reductions from coal and oil generating are the primary reason why the emissions decreased.  Note that both coal and oil emissions have dropped over 78% since the baseline over all 12 states.  Natural gas increased but not nearly as much.  I believe that the fuel switch from coal and oil to natural gas occurred because natural gas was the cheaper fuel and had very little to do with RGGI because the CO2 allowance cost adder to the plant’s operating costs was relatively small.   There is no evidence that any affected source in RGGI installed add-on controls to reduce their CO2 emissions.  The only other option at a power plant is to become more efficient and burn less fuel.  However, because fuel costs are the biggest driver for operational costs that means efficiency projects to reduce fuel use means have always been considered by these sources.   Because the cost adder of the RGGI carbon price was relatively small I do not believe that any affected source installed an efficiency project as part of its RGGI compliance strategy.

I believe that fuel switching is the primary cause for the observed emission reductions.  Nonetheless RGGI did cause some reductions but that is limited to reductions due to the investments made with the auction proceeds.  RGGI prepares an annual Investments of Proceeds  report that I used to calculate the annual emission reductions accumulated since the beginning of the program through 2018.  The table Accumulated Annual Regional Greenhouse Gas Initiative Benefits Through 2018 lists the annual avoided CO2 emissions generated by the RGGI investments from four previous reports.  The accumulated total of the annual reductions from RGGI investments is 3,091,992 tons while the difference between total annual 2005 and 2018 emissions is 71,854,455 tons.  The RGGI investments are only directly responsible for 4% of the total observed annual reductions over the 2005 to 2018 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 52,116,796 annual ton reduction (41%) in the nine RGGI states to 2018 and RGGI investments accounted for 6%.

The next slide lists benefits of RGGI participation.  In order to respond to each of these bullet points would take a lot of effort.  One claim is that “CO2 emissions will decrease by more than 10x when compared to future emissions without program participation”.  That is based on modeling results and those results are largely based on assumptions about the price of natural gas relative coal.  The model has been used from the beginning to determine the effects of RGGI and if one were to verify the original predictions of emissions reductions against what happened the results would be terrible because natural gas became so much cheaper since 2009.  My instinct is that the cost differential will remain the same which I believe will lead to continued fuel switching that will be the primary cause of reductions not RGGI participation.  The economic benefits are based on another model that I don’t trust.  The improvements to healthcare costs and quality of life all assume that there is a linear, no-threshold relationship with air pollution.  I have looked at the PM2.5 relationship in New York City and am unimpressed with the purported benefits.

There are five slides that explain how RGGI works.  It is basically a more detailed description of material already presented.  There are a couple of items of note.  The DEP proposes a cap of 78 million tons a little over 3 million tons less than the emissions in 2018.  The CO2 limit slide includes a bullet that states: “Analyzing emissions impacts in environmental justice (EJ) areas and developing EJ principles”.  It is currently fashionable among progressive environmentalists to incorporate consideration of EJ communities.  Unfortunately, I think the concern about emissions from power plants directly affecting health in neighboring communities is mis-placed because they usually claim health impacts from ozone and PM2.5 which are secondary pollutants.  That means that formation takes time and by that time that happens the pollution has been transported away from the immediate neighborhood.  That is not to say that they are not nuisance impacts from the neighborhood power plants.  DEP expects $300 million in 2022 from the sale of allowances.  Under existing statutes, they can only use auction revenue for the “elimination of air pollution” and that affects the revenue investment strategy.

The slide titled How RGGI Reduces Air Pollution describes a theory of this market-based approach for pollution control.  When the affected sources purchase allowances to cover their emissions, they factor that cost into the price they sell their electricity.  Theory says that the less pollution a power plant creates the cheaper they can sell the electricity.  Grid operators buy the cheapest electricity first so cleaner energy is cheaper electricity.  I believe that there is a gap between theory and the reality of the RGGI cost to the affected sources.  As noted previously I believe the RGGI CO2 allowance cost adder to the plant’s operating costs has been relatively small and will continue to be small.  That was based on conversations with people who would know at the power company I worked at before retirement and discussions with colleagues.  Until such time that someone calculates those costs and shows that my presumption is wrong then I continue to believe that this theory, while correct, in practice does not affect power plant dispatch and emissions simply because the allowance cost adder is too small relative to differences in fuel costs.

There is a slide discussing the models used that I am not going to discuss.  Just keep in mind that all models reflect the assumptions used by the model developers.  I have yet to see verification tests that prove that the models in question have accurately made future projections in the past.  Nonetheless there is a later slide that claims nine different health benefits.

The webinar then turned to a discussion of revenue reinvestment scenarios.  They looked at three scenarios for discussion and emphasized that they do not reflect funding commitments. The three scenarios were: balanced approach, ratepayer assistance, and general fund and varied by the relative percentage in each of the five broad categories.  Because they can only use auction revenue for the “elimination of air pollution” they only discussed the balanced approach which will “utilize auction revenue to spur innovation, technology deployment and incentivize private sector investments”.  Investments will basically be one third to the energy efficiency, clean and renewable energy and greenhouse gas abatement categories.  Their modeling shows that it generates jobs and grows the economy, all with only a slight decrease in disposable income.

I believe that the ratepayer assistance reinvestment scenario is the best choice.  During the presentation it was noted that energy efficiency investments can be targeted to those who are having trouble paying their energy costs and other than direct bill assistance this is the only category that has that advantage.  More importantly, the results so far in RGGI reported in the annual Investments of Proceeds suggest that investments in clean and renewable energy and greenhouse gas abatement would not be a good deal for Pennsylvania.  As noted previously the accumulated total of the annual reductions from RGGI investments is 3,091,992 tons.  In the 2018 RGGI All-Time Benefits of RGGI Investments table I list the accumulated total annual RGGI investments as $2,578,305,737.  The RGGI CO2 reduction cost per ton based on those numbers is $898 dollars per ton of CO2 reduced.

2018 RGGI All-Time Benefits of RGGI Investments

RGGI Avoided Electric Energy Energy
Investments CO2 Savings Savings
($) (Short tons) (MWhr) (mmBtu)
Through 2018 $2,578,305,737 39,359,169 56,990,140 199,317,431

One way to determine if the GHG emission reduction costs are an effective tool is to compare the cost per ton reduced against a damage metric.  The social cost of carbon (SCC) is the metric used by Federal agencies for this purpose.  I recently posted an overview summary of the SCC but for the purposes of this post you need to know that the values range widely depending on assumptions.  The most widely used value at this time is from the Obama-era Interagency Working group.  If you use a discount rate of 3% and consider global benefits then the 2020 SCC value is $50.  The RGGI investments exceed that metric by over an order of magnitude so they cannot be considered cost-effective relative to the alleged negative impacts of CO2 emissions.

What’s the Point?

According to DEP’s RGGI website: “Governor Wolf states that climate change is the most critical environmental threat confronting the world, and given that power generation is one of the largest contributors to greenhouse gas emissions, it is time to take concrete, economically sound and immediate steps to reduce emissions”.  If Pennsylvania joins RGGI what effect will it have on climate change?   I could not find an estimate by DEP so I made my own.  I simply adapted the the calculations in Analysis of US and State-By-State Carbon Dioxide Emissions and Potential “Savings” In Future Global Temperature and Global Sea Level Rise  to estimate the potential effect.  This analysis of U.S. and state by state carbon dioxide 2010 emissions relative to global emissions quantifies the relative numbers and the potential “savings” in future global temperature and global sea level rise.   These estimates are based on MAGICC: Model for the Assessment of Greenhouse-gas Induced Climate Change) so they represent projected changes based on the Intergovernmental Panel on Climate Change estimates.  All I did in my calculation was to pro-rate the United States impacts by the ratio of Pennsylvania electric sector emissions in 2019 divided by United States emissions to determine the effects of a complete cessation of all CO2 Pennsylvania electric sector emissions to estimate the best-case for joining RGGI.

As shown in the Pennsylvania RGGI Potential savings in future global warming table I found there would be a reduction, or a “savings,” of approximately 0.0011°C by the year 2050 and 0.0023°C by the year 2100.  To give you an idea of how small this temperature change is  consider changes with elevation and latitude.  Generally, temperature decreases three (3) degrees Fahrenheit for every 1,000-foot increase in elevation above sea level.  The projected temperature difference is the same as going up 9 inches.  The general rule is that temperature changes three (3) degrees Fahrenheit for every 300-mile change in latitude at an elevation of sea level.  The projected temperature change is the same as going north two tenths of a mile.

Pennsylvania’s action should also be considered relative to the rest of the world.  According to the China Electricity Council, about 29.9 gigawatts of new coal power capacity was added in 2019 and a further 46 GW of coal-fired power plants are under construction.  If you assume that the new coal plants are super-critical units with an efficiency of 44% and have a capacity factor of 80%, the reductions provided by this program will be replaced by the added 2019 Chinese capacity in 389 days or 153 days if the 2019 capacity and the units under construction are combined.  Clearly, in the absence of worldwide commitments Pennsylvania joining RGGI will have no tangible benefits relative to global warming.

Conclusion

I have followed the RGGI program for years and summarized my observations late last year.  I believe that RGGI is not the success that its adherents believe. Based on the numbers there are some important caveats to the simplistic comparison of before and after emissions.  At the bottom of the DEP’s RGGI website there is a link stating “Learn more about the Regional Greenhouse Gas Initiative and its results over the last ten years”.  The link is to the Acadia Center report “The Regional Greenhouse Gas Initiative: Ten Years in Review”.  That report and the claims for success made in the presentation both make the same error because they attribute all the reductions in CO2 emissions and air quality improvements to the RGGI program.  Fuel switching independent of RGGI was the most effective driver of emissions reductions since the inception of RGGI.  Emission reductions from direct RGGI investments were only responsible for 5% of the observed reductions.  RGGI investments in emission reductions were not efficient at $897 per ton of CO2 removed.  In my opinion those are not the hallmarks of a successful pollution control program.

As a model for future programs, RGGI proved that a regional entity could implement a cap and auction program.  However, the actual cause of observed reductions should be considered before Pennsylvania joins RGGI.  For all intents and purposes RGGI is simply a tax.  If Pennsylvania does join RGGI, based on the results to date, I think all the investments should go to energy efficiency and direct bill assistance so that those least able to afford the additional costs imposed by the program can get some benefits.

As to the effects on climate change if Pennsylvania joins RGGI, it is obvious that there will be no discernable impact.  That being the case, this is nothing more than virtue signaling to appeal to a motivated political constituency.