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.

Investment of RGGI Proceeds Report for 2018

Update: August 7, 2020:  I submitted a  Letter to RGGI on August 3 2020 describing the issues raised in this article.  Further updates if there is a response.

This is the third 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.

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 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%.”

Although proponents claim that this program has been an unqualified success I disagree.  I believe that the report mis-characterizes some of the numbers relative to the value of the program as an emission reduction approach.  This is because they present “lifetime” benefits of the investments.  Everyone is talking about emissions reductions from some annual value, usually 1990.  In order to determine effectiveness to meet those goals the only benefits that count are annual reductions due to RGGI.  While it may be appropriate to document the lifetime dollar savings for energy efficiency, I am convinced that using lifetime values for any other parameter is bogus.

Emissions Reductions

The first mis-leading statement claims 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.  Their comparison starting date was 2005 when the emissions from those nine states equaled 147,032,069 tons.  The insinuation in the 50% claim is that the RGGI program had something to do with the reduction but the reduction between 2005 and the start of the program was 26% so clearly something else has been going on.  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%. Data are listed in the State-Level CO2 Emissions for Nine RGGI States 2005 to 2019 table. I used the EPA Clean Air Markets Division Data and Maps query tool to download the emissions from all programs by state for the period 2005 to 2018 so slight differences could be due to the data  used.

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 we have to sum the values in the previous reports to provide that information.  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 as well as the lifetime values.  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%) to 2018 and RGGI investments accounted for only 6%.

Cost Efficiency

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.  It is the present-day value of projected future net damages from emitting a ton of CO2 today.  I recently posted an overview summary of the SCC as used in New York. but for the purposes of this post you need to know that the values range widely depending on assumptions.  For example, if you use a discount rate of 3% and consider global benefits like the Obama-era Environmental Protection Agency (EPA) did then the 2020 SCC value is $50.  On the other hand, the current Administration interim SCC value is $7 for a 3% discount rate and $2 for a 5% discount rate that represents only benefits to the United States.  The Institute for Policy Integrity report “Expert Consensus on the Economics of Climate Change” projected a higher 2020 SCC value of ~$140 based on a survey of experts.  A 2015 paper in Nature Climate Change “Temperature impacts on economic growth warrant stringent mitigation policy” suggest that the SCC value should be $220.

The Accumulated Annual Regional Greenhouse Gas Initiative Benefits Through 2018 table lists the data needed to calculate the RGGI CO2 reduction cost per ton.  From the start of the program in 2009 through 2018 RGGI has invested $2,775,635,415 and reduced annual CO2 emissions by 3,091,992 tons.  The cost per ton reduced result, $898 per ton reduced, is four times greater than the highest SCC value and two orders of magnitude greater than the current EPA SCC value for United States benefits.

The RGGI report also provides mis-leading cost per ton reduced information.  Chart 5, RGGI Investments as a Subset of Total Proceeds states that RGGI Investments totaled $2,578,305,737 through 2018 and Table 6: All-Time Benefits of RGGI Investments states that 39,359,169 tons of CO2 were avoided.  Using those two numbers to calculate the cost per ton avoided gives a value of $65.51, which compares much better to the SCC values presented before.  Unfortunately, that approach is wrong.  All the political target reductions are based on emissions from a given year.  Therefore, the cost per ton reduced must only consider annual avoided tons.

Conclusion

The fact is that, for policy purposes, the annual reductions from RGGI have to be considered because that is the “apples to apples” comparison.  It is very disappointing that the RGGI investment reports no longer report the accumulated annual reductions.  I have to believe the reason why is because the values appropriate for determining the effectiveness of this program as a control program reflect so poorly on the program.

There is another change in the reported values between the 2018 report and previous reports that is troubling.  Until this report the first 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.  I guess showing that the investments in 2017 only managed to train 83 workers was not deemed important enough to include for 2018.

Reductions of CO2 directly attributable to investments made from the auction proceeds only total 4% of the observed CO2 reductions from 2005 to 2018 and only 6% from a representative background before the program started until 2018.  Those poor results combined with $2.6 billion investments costs result in a nearly $900 cost per ton of CO2 reduced.  That value far exceeds the social cost of carbon value contrived to prove the value of CO2 reductions.

Part 242 Comments on the Regulatory Impact Statement

For the past month or so I have been preparing comments on the New York State Department of Environmental Conservation (DEC)  proposed revisions to their Part 242 CO2 Budget Trading Program rule. I submitted the comments on June 26, 2020. In a companion post I addressed the background for the rule revisions and rationale used for the significant rule changes. This post summarizes my comments on the Regulatory Impact State that justifies the proposed revisions.

I submitted comments because I want my family to be able to afford to continue to live in New York State.  The proposed rule is consistent with the Climate Leadership and Community Protection Act (“Climate Act”) that will necessarily affect the price of energy in New York and based on results elsewhere I believe those costs will ultimately be unacceptable.  I have written a series of posts on the feasibility, implications and consequences of the law.  I am a retired electric utility meteorologist with nearly 40 years of experience analyzing the effects of emissions on the environment.  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.

Introduction

I describe the specifics of the proposed revisions and my concerns in the companion post.  One of the purported benefits of this regulation is that New York’s climate leadership will entice other jurisdictions to emulate New York by setting an example.  However, the justification provided for these revisions provides New York citizens insufficient evidence to support the proposed changes and sets a poor example for others to follow.  I analyzed the claims in the Regulatory Impact Statement (RIS) that were used to justify the proposed actions and I will discuss those comments here.  The RIS has mandatory discussion items and I will not address my comments on items not related to justification of the proposed actions.

Regulatory Impact Statement

The Regulatory Impact Statement (RIS) is a mandated component of DEC rule-making.  It describes the statutory authority and legislative objectives, lists the needs and benefits, estimates costs, changes to paperwork, local government mandates, notes if there is any duplication with other Federal and State regulations, lists alternative, determines if the regulation is consistent with Federal standards and provides a compliance schedule.  I wish I could say that the RIS makes a compelling case for the proposed action but I can’t. This is important because one of the purported benefits of this regulation and New York’s climate leadership is that New York will lead the way for others setting an example that they will emulate.  However, absent compelling arguments, that benefit will not be realized. 

The general approach for current New York energy and environmental rule-making associated with climate change is to unequivocally associate Greenhouse Gas Emissions (GHG) with a litany of climate change impacts that are happening now and will get much worse in the future.  I have been planning to spend time addressing this simplistic argument for a long time and this regulation gave me the opportunity to comment.  In the following sections using the titles from the RIS, I quote text from sections in the RIS and provide my comments in the following italicized, indented sections. 

Introduction

The burning of fossil fuels to generate electricity is a major contributor to climate change because fossil-fuel generators emit large amounts of CO2, the principal greenhouse gas (GHG). Overwhelming scientific evidence confirms that a warming climate poses a serious threat to the environmental resources and public health of New York State – the very same resources and public health the Legislature has charged the Department to preserve and protect. The warming climate threatens the health and well-being of the State’s residents and citizens, the State’s property, and the natural resources held in trust by the State, including, but not limited to, the State’s air quality, water quality, marine and freshwater fisheries, salt and freshwater wetlands, surface and subsurface drinking water supplies, river and stream impoundment infrastructure, and forest species and wildlife habitats. Not only will the proposed Program revisions help to further counter the threat of a warming climate, they will also produce significant environmental co-benefits in the form of improved local air quality, and a more robust, diverse and clean energy supply in the State.

The biggest flaw in the RIS is the failure to quantify the impact of the proposed action on the alleged impacts of a warming climate.  Instead there are vague allusions that the proposed revisions will “help to further counter the threat of a warming climate”.  In order to properly evaluate the benefits and costs of the proposed revisions the RIS should estimate the global warming potential impacts of the proposed action. 

 In the absence of such an evaluation I calculated the effect  of total elimination of New York’s 1990 218.1[1] million metric ton greenhouse gas emissions on projected global temperature rise.  I found there would be a reduction, or a “savings,” of approximately 0.0032°C by the year 2050 and 0.0067°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 down 27 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 south two thirds of a mile. 

 Of course, the RIS should project what this particular action will do for global temperature.  The RIS Model Rule Policy Case Program Design Assumption description states that CO2 emissions in New York are projected to be 3.41 million tons lower in the Model Rule Policy Case than in the Reference Case in 2031.  Using the same methodology as before I found there would be a reduction, or a “savings,” of approximately 0.00005°C by the year 2050 and 0.00009°C by the year 2100.  The projected temperature difference is the same as going down 3/8 of an inch and the projected temperature change is the same as going south 50 feet. 

 New York’s actions 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 16 days or 6 days if the 2019 capacity and the units under construction are combined.  Clearly, in the absence of worldwide commitments this proposal has no tangible value to the citizens of New York.

 The RIS also claims that the emission reductions will also produce significant environmental co-benefits in the form of improved local air quality, and a more robust, diverse and clean energy supply in the State.  I take issue with the environmental co-benefits arguments simply because I have never seen documentation that confirms those benefits relative to the observed air quality improvements in my lifetime (see for example my evaluation of PM 2.5 in New York City).  Combining claimed benefits for robust and diverse energy supply with a clean energy supply is unsubstantiated rhetoric.  In order for the power supply to be robust it has to be dispatchable whereas wind and solar clean energy is not.  In order for the power supply to be diverse it cannot be shut down by a singular event and wind and solar can be shut down by a relatively common singular set of weather conditions at night.

The Greenhouse Effect and the Warming Climate

A naturally occurring greenhouse effect has regulated the earth’s climate system for millions of years. Solar radiation that reaches the surface of the earth is radiated back out into the atmosphere as long wave or infrared radiation. CO2 and other naturally occurring GHG emissions trap heat in our atmosphere, maintaining the average temperature of the planet approximately 60°F above what it would be otherwise. An enhanced greenhouse effect and associated climate change results as large quantities of anthropogenic GHGs, especially CO2 from the burning of fossil fuels, are added to the atmosphere.

There is no question that the greenhouse effect regulates global temperatures, that additional greenhouse gases will enhance that effect, that anthropogenic GHG emissions have added to the observed trend in GHG atmospheric concentrations, that the climate is warming and that the anthropogenic GHG emissions likely contributed to the observed warming.  However, given that there are many factors affecting climate change and that an enhanced greenhouse effect impacts not only temperature but also moisture which could have a negative feedback, it is naïve to assume that all the observed warming is caused solely by the greenhouse gas effect.

 From 1983 until his retirement in 2013, Dr. Richard Lindzen was Alfred P. Sloan Professor of Meteorology at the Massachusetts Institute of Technology.  He published over 200 papers and books and his research is still cited about 600 times per year.  He recently published another scientific paper (Lindzen, 2020) that raises some important points relative to the greenhouse effect as it pertains to New York’s energy policies:

 Doubling the atmospheric CO2 concentration from 280 ppm to 560 ppm results in just a 1-2% perturbation to the Earth’s 240 W/m² energy budget. This doubled-CO2 effect has less than 1/5th of the impact that the net cloud effect has. And yet we are asked to accept the “implausible” claim that change in one variable, CO2, is predominantly responsible for altering global temperatures.

 A causal role for CO2 “cannot be claimed” for the glacial-to-interglacial warming events because CO2 variations follow rather than lead the temperature changes in paleoclimate records and the 100 ppm total increase over thousands of years produce “about 1 W/m²” of total radiative impact.

Since the mid-1700’s, atmospheric concentrations of GHGs have increased substantially due to human activities such as fossil fuel use and land-use change. CO2 has a very long residence time in the atmosphere and, thus, has a lasting effect on the climate. Average atmospheric CO2 concentrations exceeded 407 parts per million in 2018, which according to ice core data, is higher than at any point in the past 800,000 years and the rate of increase is 100 times faster than previous natural increases at the end of the last ice age.

There are two aspects of these claims.  If you look at the CO2 data going further back in geologic time, as shown in the following grapch, there is nothing particularly unusual about the record breaking CO2 levels of the past 800,000 years  The thing that does stand out however is that we are cooler than in the past.

 The second aspect is the rate of increase claim.  The problem is that measurement resolution of proxy measurements of CO2 and temperature are not as finely resolved as today’s instrumental data.  The only way to directly compare the instrumental data to the pre-industrial proxy data is to filter the instrumental data down to the resolution of the proxy data.  This leads to climate reconstructions with “enhanced variability during pre-industrial times” and “result in a redistribution of weight towards the role of natural factors in forcing temperature changes, thereby relatively devaluing the impact of anthropogenic emissions and affecting future predicted scenarios.”[2]

There is clear scientific consensus that anthropogenic emissions of CO2 are contributing to the observed warming of the planet as presented in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. The large and persuasive body of research demonstrates through unequivocal evidence that the Earth’s lower atmosphere, oceans, and land surfaces are warming; sea level is rising; and snow cover, mountain glaciers, and Greenland and Antarctic ice sheets are shrinking. The Earth’s climate is changing, with adverse consequences already well documented across the globe, in our nation and in the State. Extreme heat events are increasing and intense storms are occurring with greater frequency. Many of the observed climate changes are beyond what can be explained by natural variability of the climate.

This description of the relationship between CO2 emissions and observed warming does not acknowledge that there is any scientific uncertainty about the greenhouse effect and climate change.  The reality is that there is debate and New York State ignores the potential ramifications.  Dr. Richard S. Lindzen, has summarized the scientific debate as follows:

I will simply try to clarify what the debate over climate change is really about. It most certainly is not about whether climate is changing: it always is. It is not about whether CO2 is increasing: it clearly is. It is not about whether the increase in CO2, by itself, will lead to some warming: it should. The debate is simply over the matter of how much warming the increase in CO2 can lead to, and the connection of such warming to the innumerable claimed catastrophes. The evidence is that the increase in CO2 will lead to very little warming, and that the connection of this minimal warming (or even significant warming) to the purported catastrophes is also minimal. The arguments on which the catastrophic claims are made are extremely weak –and commonly acknowledged as such.

In response to scientific projections of likely severe climate impacts of global average temperatures rise, the U.S. signed the1992 United Nations Convention on Climate Change. In 2016 the United States once again joined 197 countries in ratifying the Paris Climate Agreement, an enhancement to help the implementation of that Convention.

The claim that the United States ratified the Paris Climate Agreement is incorrect.  The United States never properly joined the accord.  It is a treaty that requires the advice and consent of the Senate. Instead, President Barack Obama chose to “adopt” it with an executive order.  The Senate never voted on the treaty.

Impacts from Emissions Already Observed in New York’s Climate

New York’s climate has already begun to change, gradually taking on the characteristics of the climate formerly found in locations south of New York. The need for the reduction of CO2 emissions, including through the reduced emissions cap, budget adjustment, and establishment of the ECR, is clearly supported by numerous direct impacts that have been observed in New York State and presented in the 2011 New York State ClimAID assessment and the 2014 update to ClimAID.

The title of this section exposes a significant error in the understanding of the ClimAID assessments.  In particular, those assessments described observed climate trends but did not attempt to attribute how much of the observed trends were linked to GHG emissions, how much were caused by other anthropogenic effects such as land-use changes and the urban heat-island effect, and how much was caused by natural variability.  For example, the observed monthly data source for average temperature and precipitation was the United State Historical Climatology Network and page 21 of the 2011 ClimAID document states that “this data product is not specifically adjusted for urbanization”.  One of the sites used to describe climate trends was at New York City’s Central Park.  Clearly the urban heat-island has a significant effect on temperature at that location.  Therefore, the RIS presumption that the only cause of all the observed trends was GHG emissions over-estimates their role in observed climate change trends.

These include:

  • Temperatures in New York State have risen during the twentieth century, with the greatest warming coming in recent decades – temperatures have risen on average 0.25°F per decade over the past century. This warming includes an increase in the number of extreme hot days (days at or above 90ºF) and a decrease in the number of cold days (days at or below 32ºF).

Because the effect of the urban heat-island is not considered these trends do not represent the trend due solely to the greenhouse effect.

  • Sea level rise. Sea level in the coastal waters of New York State and up the Hudson River has been steadily rising over the twentieth century, chiefly as a result of thermal expansion of ocean waters, melting of land ice and local changes in the height of land relative to the height of the continental land mass. Tide-gauge observations in New York indicate that rates of relative sea level rise were significantly greater than the global mean, ranging from 0.9 to 1.5 inches per decade.

The fact that New York tidal gauge rates of relative sea level rise are greater than the global mean shows that local changes in the height of land relative to the height of the continental land mass are a significant factor of sea-level rise that no amount of change to the greenhouse effect will affect.

 Although the RIS purports to provide current information, consider an alternative assessment of current climate state based on data and not model speculation.  Ole Humlum a former Professor of Physical Geography at the University Centre in Svalbard, Norway, and Emeritus Professor of Physical Geography, University of Oslo, reported “The State of the Climate 2019,” that presents ten key facts in the Executive summary:

“1. According to the [surface] instrumental temperature record (since about 1850), 2019 was a very warm year, but cooler than 2016.

      1. In 2019, the average global air temperature was affected by a moderate El Niño episode, interrupting a gradual global air temperature decrease following the strong 2015–16 El Niño.
      2. Since 1979, lower troposphere temperatures have increased over both land and oceans, but more so over land areas. The possible explanations include insolation, cloud cover and land use. {Caiazza note: if the greenhouse effect were the only cause of the temperature increase then there should be no difference over land vs over water.}
      3. The temperature variations recorded in the lowermost troposphere are generally reflected at higher altitudes too. In the stratosphere, however, a temperature ‘pause’ commenced in around 1995, 5–7 years before a similar temperature ‘pause’ began in the lower troposphere near the planet’s surface. The stratospheric temperature ‘pause’ has now persisted for about 25 years.
      4. The 2015–16 oceanographic El Niño was among the strongest since the beginning of the record in 1950. Considering the entire record, however, recent variations between El Niño and La Niña are not unusual.
      5. Since 2004, when detailed recording of ocean temperatures began, the global oceans above 1900 m depth have, on average, warmed somewhat. The strongest warming (between the surface and 200 m depth) mainly affects the oceans near the Equator, where the incoming solar radiation is at its maximum. In contrast, for the North Atlantic, net cooling at the surface has been pronounced since 2004.
      6. Data from tide gauges all over the world suggest an average global sea-level rise of 1–1.5 mm/year, while the satellite record suggests a rise of about 3.2 mm/year, or more. The noticeable difference in rate (a ratio of at least 1:2) between the two data sets still has no broadly accepted explanation.
      7. Since 1979, Arctic and Antarctic sea-ice extents have had opposite trends, decreasing and increasing, respectively. Superimposed on these overall trends, however, variations of shorter duration are also important in understanding year-to-year variations. In the Arctic, a 5.3-year periodic variation is important, while for the Antarctic a variation of about 4.5-years’ duration is seen. Both these variations reached their minima simultaneously in 2016, which explains the simultaneous minimum in global sea-ice extent. This particularly affected Antarctic sea-ice extent in 2016.
      8. Northern Hemisphere snow cover extent undergoes important local and regional variations from year to year. Since 1972, however, snow extent has been largely stable.
      9. Tropical storms and hurricanes have displayed large annual variations in accumulated cyclone energy (ACE) since 1970, but there has been no overall trend towards either lower or higher activity. The same applies for the number of continental hurricane landfalls in the USA, in a record going back to 1851.”

Future Impacts from Emissions Predicted for New York’s Climate

Predictions of future impacts associated with emissions in New York further support the need for a substantial reduction in the CO2 emissions cap as well as the budget adjustment and ECR, as outlined in the proposed revisions to the Program. The 2011 New York State ClimAid assessment and 2014 update also examined how sea level rise, changes in precipitation patterns, and more frequent severe weather conditions will affect New York’s economy, environment, community life and human health. ClimAID used regionalized climate projections to develop adaptation recommendations and is a climate change preparedness resource for planners, policymakers, and the public. 

The future impacts assessment in the RIS relies on the 2011 New York State ClimAid assessment and 2014 update that examined how sea level rise, changes in precipitation patterns, and more frequent severe weather conditions will affect New York’s economy, environment, community life and human health.  There are three problems with those assessments: reliance on global climate model simulations, the use of Representative Concentration Pathway 8.5, and the use of a regional climate model.

 Climate sensitivity

Predictions of substantial global warming assume that the climate is very sensitive to an increase in GHG concentrations.  The RIS does not recognize that this is an active debate because of climate feedback in various models and that estimates in peer reviewed studies range from 0.8°C warming to almost 6.0°C warming by 2100.  Clearly such a wide range

of uncertainty means climate model temperature projections remain dubious, at best. In my opinion climate sensitivity estimates based on measured data are more likely to be correct than GCM projected estimates and those estimates are invariably on the lower end of the range.  The problem with the GCM estimates is cloud formationFor example, “Given current uncertainties in representing convective precipitation microphysics and the current inability to find a clear observational constraint that favors one version of the authors’ model over the others, the implications of this ability to engineer climate sensitivity need to be considered when estimating the uncertainty in climate projections.”  To be clear, that means that modelers can conjure up whatever warming amount you want simply by tweaking how clouds form in response to the greenhouse effect.

 Emissions RCP 8.5

In order to make a projection for the future it is necessary to not only project the effect of changing GHG concentrations but also project how emissions will change.  The ClimAID assessment presents a range of possible projections but the worst-case impacts rely on a future emissions scenario that was not intended to be plausible. In short, the likelihood of the projected impacts that “make the case” for the proposed revisions are based on an unrealistic emissions scenario.  While it does make for the scary story needed to justify the proposed action, the fact is that it is inappropriate for use as justification for it.

 Regional Climate Model

One problem with a GCM is that in order to calculate the global climate a coarse horizontal grid is needed simply because of computational requirements.  In order to account for New York-specific impacts using a finer grid resolution ClimAID developed a regional climate model.  I believe they used a statistical technique to estimate regional climate impacts.  If that assumption is correct then their results are flawed.  In particular, the GCM gird resolution is so coarse that effects of the Great Lakes are not included.  However, “These techniques assume that the relationship between large scale climate variables (e.g. grid box rainfall and pressure) and the actual rainfall measured at one particular rain gauge will always be the same.”  Given that precipitation downwind of the Great Lakes is strongly influenced by lake-effect snow and rain, the large-scale precipitation estimates that do not include the Great Lakes means that this is clearly not the case.

Future Impacts from Emissions for New York State’s Resource Sectors

I did respond to all the problematic statements in this section.  As shown above there are serious concerns with the primary projections of temperature change.  The secondary projections of impacts to resource sectors is even more speculative especially because the alleged impacts require specific uncertain climatic outcomes.  I highlighted several issues that demonstrate a lack of nuanced understanding of potential climate change impacts.

In the section on Coastal Zones, the RIS states “Superstorm Sandy gained additional strength from unusually warm upper ocean temperatures in the North Atlantic”.  The RIS correctly does not attribute Superstorm Sandy to climate change.  I do not disagree with the claim that the storm could have gained additional strength from unusually warm temperatures.  I do want to point out that these claims point to the most likely long-term impact of anthropogenic climate change, i.e., impacts will be tweaks to the environment and not primary drivers of environmental change. 

In the same section the RIS claims that New York’s shoreline will be adversely affected by climate change: “The major contributor to sea level rise is thermal expansion and melting of glaciers and ice sheets.”  This section concerns Future Impacts from Emissions and therefore it is incompatible with the Impacts from Emissions Already Observed in New York’s Climate discussion of sea level.  As correctly noted in that section “Sea level in the coastal waters of New York State and up the Hudson River has been steadily rising over the twentieth century, chiefly as a result of thermal expansion of ocean waters, melting of land ice and local changes in the height of land relative to the height of the continental land mass. Tide-gauge observations in New York indicate that rates of relative sea level rise were significantly greater than the global mean, ranging from 0.9 to 1.5 inches per decade”.  Because New York tidal gauge rates of relative sea level rise are greater than the global mean shows that local changes in the height of land relative to the height of the continental land mass are a significant factor of sea-level rise that no amount of change to emissions will affect.

In the section on agriculture the RIS notes that “increased summer heat stress will negatively affect cool-season crops and livestock unless farmers take adaptive measures such as shifting to more heat-tolerant crop varieties and improving cooling capacity of livestock facilities”.  Misleadingly, the section then goes on to say “A loss of milk production efficiency from heat effects could result in the loss of hundreds of millions of dollars annually for New York’s dairy industry” based on the following:

“Dairy farmers will also be impacted since milk production is maximized under cooler conditions ranging from 41°F to 68°F. New York is the third largest producer of milk in the United States, behind California and Wisconsin, with 14.9 billion pounds of milk produced in 2017. During the unusually hot summer in 2005, many New York dairy herds reported declines in milk production of five to 15 pounds of milk per cow per day (an eight to 20 percent decrease).”

The average July temperature in Syracuse is 71, Madison WI is 75, and Sacramento, CA is 77, so two states that produce more milk than New York have higher average temperatures.  Additionally, the RIS mistakenly quotes a milk decrease from a weather event to support an alleged climate impact.

In the section on Air Quality and Public Health Benefits the RIS states:

“In addition to contributing to a 50% reduction in CO2 from affected power plants in New York, it is estimated that the RGGI program provided $1.7 billion in avoided public health costs in New York by reducing associated air pollutants. Across the RGGI region, it is estimated that the RGGI program helped avoid 16,000 respiratory illnesses, up to 390 heart attacks, and 300 to 830 deaths.  At a more local level, according to a 2002 study, the expected health benefits of urban air pollution reductions from climate change mitigation strategies in the New York City area (assuming that they produce an approximately 10 percent reduction in PM10 and ozone concentrations), would be to avoid approximately 9,400 premature deaths (including infant deaths), 680,000 asthma attacks, and 12 million restricted activity days.”

I showed in my companion post that the primary reason for the emission reductions was fuel switching from coal and residual oil to natural gas.  That means that the RGGI contribution to those reductions was on the order of 5% and not 50%.  That also means that the avoided health impacts were mostly due to fuel switching and not RGGI. 

A couple of points about health impacts in general and the referenced 2002 study and the potential impacts of a 10% reduction in PM10 and ozone concentrations in particular.  Between 2000 and 2019 Northeast air quality trends show more improvement than a 10% reduction: PM10  is down 39%, PM2.5 is down 47%, ozone is down 24%, and SO2 is down 86%.  Until such time that DEC can reference a study that shows the actual health benefits associated with the observed air quality improvements, I am not confident that their air quality health claim is accurate.  Also note that future air quality impacts will be much smaller because the higher polluting coal and residual oil sources have already been reduced.  CO2 reductions from natural gas firing will not produce as many reductions in PM and Ozone levels and no change in SO2.

Components of the Proposed Program Revisions

One of the problems with New York’s energy policy is demonstrated by this statement: “The reduction in the CO2 emissions cap to approximately align with current levels represents a critical step to combat the significant challenges presented by climate change and to advance sound energy policies that foster energy efficiency, a reduction in reliance on fossil fuels, and energy independence”.   In particular, New York State has not done a holistic analysis of the energy and environmental alternatives proposed to replace fossil fuels.  For example, this proposal is supposed to foster energy independence but in 2019 the United States was energy independent.  New York’s energy plan proposes to rely on renewable energy which will require battery energy storage.  Both technologies rely on rare elements which are not produced in sufficient quantities domestically to cover the requirements of the New York energy transition so we will become less energy independent.  Furthermore, the production of these rare elements is environmentally destructive so the State is merely leaking environmental impacts elsewhere.

Benefits from the Proposed Program Revisions

This section notes: “The most recent version of the New York State Regional Greenhouse Gas Initiative-Funded Programs Status Report for the quarter ending December 31, 2018 estimates cumulative annual customer bill savings of $293 million.”

Unfortunately, in my companion post I showed that as a GHG emission reduction mechanism, New York’s RGGI investments fail to make investments that are less than the purported cost of the negative externalities for a ton of CO2 emitted today (the Social Cost of Carbon (SCC)).  In fact, the cost per ton removed is an order of magnitude larger than the Obama-era SCC value.  Therefore, New York’s investments are woefully cost ineffective which suggests that our resources should be invested in adaptation because we will not be able to afford the costs of mitigation.

There is a paragraph in this section that describes the Climate Act:

Most notably, as described above, the recently-enacted Climate Act establishes Statewide GHG emission reduction requirements and renewable and clean energy generation targets. In particular, ECL Section 75-0107, which was added by the Climate Act, requires a 40 percent reduction in Statewide GHG emissions from 1990 levels by 2030, and an 85 percent reduction from 1990 levels by 2050. Moreover, Public Service Law Section 66-p, which was also added by the Climate Act, establishes a target to generate 70 percent of the State’s electricity from renewable energy sources by 2030, and to generate 100 percent of the State’s electricity from carbon-free sources by 2040. The proposed revisions to the Program, including the additional reduction in the RGGI CO2 emissions cap and the establishment of the ECR, further the objectives of the Climate Act. Finally, the Climate Act also includes multiple provisions that recognize that historically disadvantaged communities often suffer disproportionate and inequitable impacts from climate change. The proposed revisions to the Program to expand its applicability to include certain smaller sources, many of which are located in such communities, are consistent with these provisions of the Climate Act.

This section concludes with claimed benefits of implementing the proposed revisions:

Climate change is a global problem and effective action at the national and international level is necessary in order to stabilize atmospheric GHG concentrations at acceptable levels. Notwithstanding this, particularly given the current federal Administration’s recent actions to slow or rescind various regulatory and other efforts to reduce GHGs nationally, action now at the State and regional level to reduce GHG emissions and to implement the revisions to the Program will benefit and reduce the risk of injury to New York and its citizens and residents from climate change. The risks of injury from a warming climate increase with the rate and magnitude of the warming, and in turn, the rate and magnitude of warming is primarily dependent upon the level of CO2 emissions. In addition, by implementing the proposed revisions to the Program now, New York and the Participating States can:

        • Reduce the long-term costs of addressing climate change. By acting now, states can avoid the need for more disruptive measures later.
            • As noted previously there is no quantitative estimate of the potential reduction of climate change costs that will accrue due to the proposed action.
        • Position the region ahead of competitors. Taking continued action to reduce the region’s carbon-intensity will create a competitive advantage relative to other parts of the country when additional action is taken at the national and international level.
            • The German attempt to implement a similar but much less ambitious GHG emissions program led to massive price increases: “A German online site Stromreportwrites that since the year 2000 the average electricity price for private households has risen from 13.94 to 30.43 euro cents per kilowatt hour (2019)”.  If the cost of electricity is so much higher than elsewhere it will be a competitive dis-advantage.
        • Capture environmental co-benefits. Reducing power sector carbon emissions provides numerous environmental co-benefits, including reduced emissions of other pollutants associated with fossil-based electricity generation. Additionally, co-benefits will continue to be realized by allocating almost 100 percent of the CO2allowances to the EE&CET account to be auctioned by NYSERDA and have the resulting proceeds utilized for the account’s purposes of furthering the GHG emission reduction objectives of the Program.
            • Future environmental co-benefits will be much smaller than in the past simply because future reductions will be displacing natural gas rather than coal and oil. As shown above, NYSERDA’s investments are not cost-effective relative to the Social Cost of Carbon.
        • Drive new technology. By attaching tangible financial value to avoided carbon emissions, the proposed Program revisions provide additional market incentive for developing and deploying new technologies that can increase fuel efficiency, utilize non-carbon resources (including renewable technologies such as wind and solar power), and reduce or eliminate carbon emissions from combustion sources. In addition, to the extent that the auctioning of allowances will spur additional investments in clean energy technologies, the auctions drive the deployment of new technologies in the State.
          • I believe the cost of avoiding carbon emissions is far greater than the cost of RGGI on operations so this will have little effect on new technology.
        • Promote improved supply-side and demand-side efficiency. The proposed Program revisions create a direct incentive to reduce the fossil fuel inputs required to produce electricity through more efficient generating technologies. This is consistent with the Climate Act’s target to obtain 100 percent of the State’s electricity from carbon-free sources by 2040.
            • The NYSERDA investments in demand-side efficiency have provided tangible benefits. If DEC wants to claim supply-side efficiency gains then they should provide examples.
        • Improve the region’s energy security and reduce its exposure to higher energy prices. By creating a market incentive for low-carbon and non-carbon electricity technologies and by promoting increased supply-side and demand-side efficiency, the proposed Program revisions reduce the Northeast’s long-term exposure to high fossil fuel energy prices. Efficiency improvements and advances in new energy technology fostered by the proposed Program revisions can help buffer the region from the considerable economic risks associated with continued dependence on these fuels.
            • If New York truly wants to reduce exposure to higher energy prices then they should embrace natural gas development which has proven to be the leading cause in decreased prices. In spite of New York’s irrational war on natural gas fracking, that technology has been primarily responsible for the observed emission reductions and associated health benefits in the past decade.
        • Stimulate economic development. The proposed Program revisions provide a positive stimulus for economic growth in the region by creating incentives for new technologies that could be developed in-region, promoting a more efficient and cleaner electricity generating sector, prompting other activities through its offsets program and improving efficiency. NYSERDA’s investment of proceeds from the auctioning of allowances provides further economic benefits.
            • The broken window fallacy negates this claim. In the broken window fallacy – money spent on RGGI allowances, for example, is “money that cannot be spent on food, clothing, health care, or other industries. The stimulus felt in one sector of the economy comes at a direct – but hidden – cost to other sectors”.

Conclusion

I recently listened to the June 24 meeting of the New York Climate Action Council Policy in which New York’s climate leaders repeatedly expounded on the importance of science driving New York policy.  However, as the implementation of this regulation shows, it is more about rhetoric than science.  Science-driven policy should consider all possibilities, make a case for the preferred alternative, and not neglect inconvenient aspects of the proposal.  In this instance the RIS claims over-whelming evidence and dismisses legitimate issues.  I showed in the companion post that no case was made for the proposed revision to the regulation to include smaller sources.  The most egregious problem is that New York has never quantified the potential effect of any of their GHG emission reduction regulations.  The suggestion that changing New York’s contributions to global warming due to GHG emissions, even if you accept the consensus science, will have any measurable effect on the list of alleged problems is clearly not likely.  At this time of unprecedented budgetary crisis, the RIS does not make a case to support these revisions and it is entirely appropriate to ask why this regulation is necessary.

[2] Esper, J., R.J.S. Wilson,  D.C. Frank, A. Moberg, H. Wanner, & J. Luterbacher.  2005.  “Climate: past ranges and future changes”.  Quaternary Science Reviews 24: 2164-2166.

[1] This was the total for 2015 NYS emissions in NYSERDA Greenhouse Gas Inventory 1990-2015. Subsequent editions have lowered the most recent total so this is a conservative value for impacts.

 

Part 242 Comments – Background and Rationale for Revisions

For the past month or so I have been preparing comments on the New York State Department of Environmental Conservation (DEC)  proposed revisions to their Part 242 CO2 Budget Trading Program rule.  This post summarizes my Part 242 Comments addressing the background for the rule revisions and rationale used for significant rule changes.  There is a second post that addresses the Regulatory Impact Statement for the proposed rule changes.

I submitted comments because I want my family to be able to afford to continue to live in New York State.  The proposed rule is consistent with the Climate Leadership and Community Protection Act (“Climate Act”) that will necessarily affect the price of energy in New York and based on results elsewhere I believe those costs will ultimately be unacceptable.  I have written a series of posts on the feasibility, implications and consequences of the law.  I am a retired electric utility meteorologist with nearly 40 years of experience analyzing the effects of emissions on the environment.  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.

Introduction

The proposed revisions to Part 242 primarily implement Regional Greenhouse Gas Initiative (RGGI) program changes set forth in the updated RGGI Model Rule.  There are several substantive changes.

The proposed Program revisions will cap regional CO2 emissions at approximately 75 million tons annually beginning in 2021 and decrease the cap by 2.275 million tons annually. There are changes to the Cost Containment Reserve (CCR) that modify the CCR trigger price and the maximum amount of CCR allowances available at auction each year. This feature puts a limit on the upper bound of costs and the proposed program revisions create an Emissions Containment Reserve (ECR), that will put a lower bound on costs.  Simply put if the price gets too high allowances are added and if the price gets too low allowances are subtracted.

The rule also includes a provision for a Third Adjustment for Banked Allowances that will adjust the budget for 100 percent of the pre-2021 vintage allowances held by market participants as of the end of 2020, that are in excess of the total quantity of 2018, 2019, and 2020 emissions. This provision is included to prevent a large allowance bank.  If the allowance bank is larger than the fourth control period emissions then they will adjust the size of the cap.

Comment Overview

For the most part the DEC proposed revisions simply implement the RGGI Model Rule and as such there is little chance for meaningful change based on comments received.  Nonetheless, because there are issues with a couple of the proposed revisions and the Regulatory Impact Statement that provides justification of the changes, I spent quite a bit of time developing comments.  The revised rule proposes to expand applicability under Part 242 to capture certain units that serve an electricity generator with a nameplate capacity equal to or greater than 15 MW and I show that the rationale used to justify this change is incorrect. RGGI recently released a guidance document that includes a schedule for the calculation of the third adjustment for banked allowances that I believe inappropriately ensures an adjustment of the allowance bank.  Finally, one of the purported benefits of this regulation is that New York’s climate leadership will entice other jurisdictions to emulate New York by setting an example.  However, the justification for these revisions provides New York citizens insufficient evidence to support the proposed changes and sets a poor example for others to follow.

 There were three components to the comments I submitted and I will discuss one in this post.  I addressed three underlying suppositions driving the proposed revisions: that RGGI has been a success and deserves to be revised, that expanding the applicability of the program to generating units greater than 15 MW but less than 25 MW is warranted, and that a binding cap is an appropriate goal.  There was a section with specific comments on the text of the regulation but I will not discuss those comments in a blog post.  A second post discusses the claims in the Regulatory Impact Statement (RIS) that were used to justify the proposed actions.

RGGI Success

The underlying premise of the proposed actions is that the Regional Greenhouse Gas Initiative has been an unqualified success and deserves to be expanded and revised.  Sprinkled throughout the RIS are statements such as: “contributing to a 50% reduction in CO2 from affected power plants in New York, it is estimated that the RGGI program provided $1.7 billion in avoided public health costs in New York by reducing associated air pollutants”.   My comments on this topic were based primarily on the many posts that I have done on RGGI.  Rather than re-hash all the background information available in my previous posts I will simply summarize the key points.

The “RGGI is a success” statements are based on a naïve comparison of emissions before and after RGGI program implementation.  I compared CO2 emissions in the nine-state RGGI region for a baseline period (2006-2008) before the start of RGGI to annual emissions since.  The total emissions have decreased from an annual average baseline of over 127 million tons prior to the program to just under 75 million tons in 2018.  This represents a 40% decrease for the RGGI region as a whole as compared to a 50% reduction in New York State CO2 emissions.  However, it is important to evaluate why the emissions decreased.  When you compare emissions by the primary fuel type burned 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 80% since the baseline.  Natural gas increased but not nearly as much.

Ultimately, the only reductions from RGGI that can be directly 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 update.  In order to determine reduction efficiency, I had to sum the values in the previous reports because the most recent report only reported lifetime benefits.  In order to account for future emission reductions against historical levels the annual reduction parameter must be used.  The Accumulated Annual Regional Greenhouse Gas Initiative Benefits table lists the sum of the annual avoided CO2 emissions generated by the RGGI investments from three previous reports.  The total of the annual reductions is 2,818,775 tons while the difference between the baseline of 2006 to 2008 compared to 2017 emissions is 59,508,436 tons.  The RGGI investments are only directly responsible for less than 5% of the total observed reductions!

Expanded Applicability

The proposed revisions expand applicability under Part 242 to capture certain units that serve an electricity generator with a nameplate capacity equal to or greater than 15 megawatts (MW).  The only rationale provided is that “New York stakeholders raised concerns during the extensive outreach efforts that the cost of complying with RGGI might result in increased operation at units not subject to the regulatory provisions of Part 242, particularly at smaller units below the existing 25 megawatt (MW) applicability threshold”.

Sadly, New York State energy and environmental policy is more about optics than scientific facts.  In order to describe this proposal based on facts I believe that, at a minimum, there would be a list of affected units, an estimate of their emissions, and an evaluation of the stakeholder concern that they might run more in the future.  There is no listing of affected units and obviously no estimate of emissions.  My best guess is that there will be 69 affected units.  I estimated that emissions averaged 126,843 tons over a five-year period and that in the highest year the CO2 emissions were 163,042 tons.  That represents about a half a percent of the total NYS emissions. The rationale is not based on a quantified estimate just a “feeling” that it might happen.  In fact, elsewhere the document itself in the RIS Model Rule Policy Case Program Design Assumption description suggests that these units will run less.  The modeling results compare two cases and in the Reference Case New York is a net importer of 2,709 GWh in 2031 but New York imports more in the Model Rule Policy Case due to lower in-state generation from gas units backing off”, my emphasis added in bold.  Furthermore, the DEC promulgated rules late last year that will result in the retirement of most of these units anyway.

Binding Cap

The RIS mentions a binding cap with respect to two aspects of the proposed rule.  During the last program review the RGGI states decided to set the regional emissions cap in 2021 to 75,147,784 tons and then reduce it by 2.275 million tons per year thereafter, resulting in a total 30 percent reduction in the regional cap from 2020 to 2030.  In addition, the RGGI states included a budget adjustment for banked allowances if the allowance bank exceeded the total quantity of 2018, 2019, and 2020 emissions at the end of the fourth control period. The RIS claims this will “help create a binding cap”.

My interpretation of a cap and trade “binding cap” is that it requires emission reductions from affected sources as a result of the control program itself and not because of other factors.  During the program review process, environmental stakeholders insisted that a “binding cap” was necessary despite significant reductions.  In this instance I think there are considerations that make that a poor choice.  This topic is important enough to warrant its own post but I will briefly address my concerns here.

There is an important difference between cap and trade programs for SO2 and nitrogen oxides (NOx) emissions and cap and invest programs for GHG emissions.  In particular, there are add-on control options for SO2 and NOx whereas there isn’t any cost-effective option for CO2.  As a result, affected sources could directly control their SO2 and NOx compliance and, more importantly, the cap limit can be set based on technologically available control performance.  In RGGI and other GHG emissions programs, there are limited direct options for the affected sources and, going forward especially, compliance is  going to have to rely on indirect reductions, i.e., someone will have to build a zero-emitting plant that displaces enough output from a fossil plant so that enough allowances are available to cover the affected source requirements.  As a result, the ultimate control strategy for an emissions marketing CO2 control program is to run less and hope power is available from somebody else.

Future emission limits are based on past RGGI success but I have shown that most of the success was the result of fuel switching to a lower priced fuel.  A recent report from the Department of Energy’s Lawrence Berkeley National Laboratory, “The Impact of Wind, Solar, and Other Factors on Wholesale Power Prices: An Historical Analysis—2008 through 2017,” confirms  that emission prices have been a minor factor in wholesale electric price changes in the NYISO.  The factors that affect wholesale electric prices determine the change in costs of production which in turn govern how much a particular unit operates.  During the ten-year period of the study “falling natural gas prices were the dominant driver of overall market-wide average price drops, reducing average annual wholesale prices by $7–$53 per megawatt-hour (MWh) over the last decade”.   Note that in Figure ES-1 Impact of Wind, Solar, and Other Factors on Wholesale Power Prices from that document that the $53 per MWh reduction was for the NYISO.

There is a limit to fuel switching, New York has closed all its coal-fired power plants and I believe the fuel-oil fired power plants cannot reduce emissions any more without shutting down.  While there are still opportunities elsewhere in RGGI the fact is that there is a limit to this option.  Combine this with the fact that past RGGI investments have not been particularly effective (only responsible for 5% of the observed reductions) that means that a binding cap will be inevitable.  While there are mechanisms that are supposed to address the risk that affected sources will be unable to obtain allowances to run and have to shut down, the concern that this is uncharted territory and has risks to reliability remains.

Third Adjustment to the Allowance Bank

The RGGI model rule includes a Third Adjustment for Banked Allowances that will adjust the budget for 100 percent of the pre-2021 vintage allowances held by market participants as of the end of 2020, that are in excess of the total quantity of 2018, 2019, and 2020 emissions. That translates to: if the allowance bank is larger than the fourth control period emissions then they will adjust the size of the cap.  This provision is included to prevent a large allowance bank going forward and is directly related to the binding cap arguments.

The clear intent of the adjustment was that there should be a limit on the size of the allowance bank going forward in 2021 based on the status after the emissions through the end of 2020 were surrendered.   On April 20, 2020 RGGI quietly posted  a guidance document, RGGI Compliance: CO2 Budget Source Fact Sheet (“Fact Sheet”), that sets a schedule  in the “dates to remember” section that states the final true-up of allowance surrender for fourth control period emissions will occur on April 2, 2021.  Using that schedule, the comparison of fourth control period emissions and the allowance bank occurs before reconciliation thus ensuring the third allowance bank adjustment.

The rationale for the timeline necessary to compare the fourth control period emissions to the allowance bank on April 2, 2021 ignores reality.  According to the Fact Sheet, the states need 31 days to ensure compliance for each CO2 budget source.  The compliance test compares the certified number of allowances submitted by each affected source against the certified number of tons emitted for each CO2 budget source.  Given that the Potomac Economics Report on the Secondary Market for RGGI CO2 Allowances for Q1 2020 released on March 13, 2020 included the allowances that were deducted for 2019 interim compliance based on the March 1, 2020 compliance certification submittals there is every reason to expect that there is a report that lists the emissions and allowances so that this comparison is a trivial effort.  This mismatch in dates will artificially reduce the allowances available for auction in 2021 (and beyond) and is not consistent with the discussions surrounding banked allowance adjustments during the public review of the Model Rule.

Conclusion

I recently listened to the June 24 meeting of the New York Climate Action Council Policy in which New York’s climate leaders repeatedly expounded on the importance of science driving New York policy.  However, as the implementation of this regulation shows, it is more about rhetoric than science.  In this regulation, smaller combustion sources are to be regulated.  The hypothesis is that they will be regulated because they will run more but there is no evidence provided why that might be the case.  In fact, they don’t even describe which units will be affected and how much they emit.  If science was the driving factor the hypothesis for each rule change would be tested to prove the case for the proposed action.

Acadia Center RGGI 10-Year Review

The Acadia Center recently released “The Regional Greenhouse Gas Initiative: Ten Years in Review”.  According to the report “The country’s first program designed to reduce climate change-causing pollution from power plants has provided a wealth of lessons to be incorporated into the next generation of climate policies, from successes to build on to opportunities for improvement”.  This post compares the claims of success for the Regional Greenhouse Gas Initiative (RGGI) against reality.

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 York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.  This program is a prototype for “cap and dividend” pollution control programs. RGGI holds quarterly auctions for CO2 allowances.  Affected sources purchase the allowances they think they will need to operate and surrender them to RGGI every three years at the end of the compliance period.  The proceeds are used to fund investments throughout the region.

The Acadia report analyzes data since the launch of the program. Their analysis claims that “CO2 emissions from power plants in the RGGI states have fallen 90% faster than in the rest of country, while economic growth in the RGGI states has outpaced the rest of the country by 31%. The program has also driven substantial reductions in harmful co-pollutants, making the region’s air cleaner and its people healthier.”

As I will show below this report is fundamentally flawed because it attributes all the reductions in CO2 emissions and air quality improvements to the RGGI program.  In reality fuel switching is the primary cause of the reductions.  When the savings that RGGI claims as benefits due to investments from the auction proceeds are evaluated, they are a small fraction of the observed reductions.

RGGI Ten Years in Review Emissions Reduction Claim

The Acadia report states:

States participating in RGGI have seen a steep decline in CO2 emissions from power plants over the last 10 years. Since 2008, the year before the program launched, RGGI emissions have fallen from 133 million short tons of CO2 to 70 million tons in 2018, shown in Figure 1. The impressive electric sector emission reductions achieved in RGGI states over that time period have outpaced reductions in the rest of the country by a staggering 90%. While the RGGI program has not been the sole factor behind the region’s rapid electric sector decarbonization, earlier analysis[1] shows that it has been a key driver—and accelerator—of emission reductions from power plants.

I do not dispute the observed reduction values but the claim that the RGGI program has been a key driver or accelerator, whatever that means, is bogus.  The referenced paper by Murray and Maniloff does not indicate that the majority of the reductions are due to RGGI and I think their estimate of 24% is an unlikely upper bound.  There are two ways to determine how much RGGI itself has contributed to the observed reductions and both show even lower estimates of the RGGI effect on emissions.

The Murray and Maniloff analysis referenced shows the region’s emissions would have been “24 percent higher without the program, accounting for about half of the region’s emissions reductions during that time”.  The econometric modeling used in their analysis assumes that compliance with the program is made more efficient by an allowance acquisition program that resembles commodities markets.  In reality, based on my experience in the utility allowance trading business and discussions with my peers, the vast majority of companies and possibly all companies treat allowance acquisition as simply a tax.  Allowances are purchased in the auctions or on the secondary market based on short-term compliance needs.  The over-riding concern is compliance.  I am not familiar enough with econometric modeling to say how this affects the results but I believe they do.

In my opinion the Murray and Maniloff analysis assumed that companies would do things to reduce their CO2 emissions rather than just buying allowances as a tax.  However, the only thing that they could do is to improve combustion efficiency to use less fuel.  Fuel costs are the over-riding driver for operating costs so plants have already looked into this and probably made the efficiency changes that they could afford so there were few opportunities left to become more efficient.  In addition, EPA’s New Source Review program can penalize old facilities that make efficiency improvements because they are concerned that they those improvements could extend the life of a higher emitting facility.  Based on my experience and discussions with colleagues in the industry affected generating units did not do anything to control emissions for RGGI.  More importantly when this analysis observed facilities shutting down, they claimed that was due to RGGI.  In fact, all the facilities that I am familiar would have shut down even if RGGI were not in effect.  For all these reasons I do not accept this reference as credible evidence for RGGI success.

The first way to determine why emissions dropped over this period is to evaluate the emissions data.  I queried the database at EPA Clean Air Markets Division data and maps  and downloaded emissions, load and heat rate data for the nine RGGI states for the years 2000-2018.  In order to determine what fuel was used I had to use these data instead of the data in the RGGI system because the EPA data includes fuel type information.  This means that there are differences in the annual totals because the EPA data set has more units in it.  Prior to the start of RGGI I had to ask for data from “all programs” and for consistency kept that constraint even after the start of RGGI.

The RGGI Nine-State EPA Clean Air Markets Division Annual Emissions Data by Primary Fuel Type table lists load and CO2 mass data from 2006 to 2018.  In order to establish a baseline, I used the average of the three years prior to the start of the program.  The CO2 mass and load from coal-fired units went down over 80% from the baseline to 2018.  The RGGI states have a relatively high concentration of residual oil-fired units and load and CO2 mass went down nearly as much.  Diesel and other oil-fired units went down over 50%.  On the other hand, natural gas firing loads went up 35% and CO2 mass went up 43%.  Because natural gas firing has much lower CO2 per MWhr emission rates the total CO2 mass went down 41% from my baseline to 2018.  Because fuel prices are the primary driver of unit operations and because the RGGI allowance price was relatively small in comparison to the fuel price differential of natural gas relative to coal and oil I conclude that the primary driver of RGGI region CO2 emission reductions was fuel switching not RGGI.

The second way to determine the effect of RGGI is to use RGGI’s own information.  The Investment of RGGI Proceeds in 2017 report tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. I recently calculated that the total annual reductions since the start of the program were: 4,014,410 MWh of electricity use avoided, 9,824,199 MMBtu of fossil fuel use avoided, and 2,818,775 short tons of CO2 emissions avoided.  The total reduction in load from the baseline until 2018 is 51,098,013 MWh so the direct investments of RGGI auction proceeds were responsible for 7.9% of the observed reduction in load.  The total reduction in CO2 from the baseline until 2018 is 52,202,198 tons so the direct investments of RGGI auction proceeds were responsible for only 5.4% of the observed emissions reduction.

Clearly the Acadia report claim that the RGGI program has been a key driver of emission reductions from power plants is wishful thinking and not supported by the data.

RGGI Ten Years in Review – Aligning the RGGI Cap with Current Emissions

Because historical emissions have been less than the cap on emissions, the Acadia report calls for program reforms including a more stringent cap, more constraints on the allowance supply, and adjustments to eliminate the allowance surplus.  The report notes that “To be most effective, the RGGI cap needs to more closely reflect the new, lower-carbon reality of the region’s electric sector and the science-based GHG reduction targets adopted by the RGGI states.”

There is one facet of the cap and trade pollution control theory that is neglected with these recommendations.  In order to be effective, the affected sources must have options to reduce their emissions.  In general, with any GHG market-based program the sources affected by the rule don’t have options.  As noted above there are no real options for a power plant to reduce its emissions.  Theoretically a power plant could develop its own non-CO2 emitting generating units but the reality, especially in a non-regulated state, is that fossil-fired power plants have little incentive to pursue those options.  Most importantly, non-regulated generators have no obligation to serve.  In my opinion they will simply operate as long as they can make a profit or have the allowances available to operate then shut down.

The most important limitation to market-based cap programs is the cap limit.  If there are no other operations then affected facilities will just operate less or shut down entirely.  In their naïveté the Acadia report authors support a strict cap that actually constrains CO2 emissions.  The problem is that CO2 emissions represent generated power.  If the facilities cannot emit CO2 then they cannot produce power.  At some point the apparent preference of environmentalists for wind and solar resources will require grid services support to support the transmission grid because those resources are diffuse and energy storage because those resources are intermittent.  No cost studies that claim wind and solar are approaching the cost of natural gas generation include those integration costs.  If the trajectory of emission reductions does not account for that reality then I predict there will be big problems.

RGGI Ten Years in Review – Economic Trends and Electricity Prices

The Acadia report claims that RGGI has “generated significant economic benefits” by investing auction proceeds in “energy efficiency, renewable energy, and other consumer programs that increase economic activity in participating states.”  They also claim that “The RGGI states have managed to rapidly reduce CO2 emissions without impeding economic growth” and that the “average retail electricity prices have dropped since RGGI took effect”.

The Investment of RGGI Proceeds in 2017 report released in October 2019 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 energy efficiency investments made in 2017 includes energy bill savings of over $1.4 billion on an investment of $315.6 million which qualifies as significant economic benefits.  However, RGGI is supposed to be a CO2 reduction program and what are the lessons to be incorporated into the next generation of climate policies from RGGI.  Sadly, from the standpoint of an efficient CO2 reduction program I don’t think you can call RGGI a success.  From the start of the program in 2009 through 2017 RGGI has invested $2,527,635,414 and reduced CO2 2,818775 tons annually which results in $897 per ton of CO2 reduced.

I will not debate the claims that RGGI rapidly reduced CO2 emissions without affecting economic growth and that retail electricity prices dropped.  However, as shown earlier the RGGI reductions had little to do with RGGI itself and much more to fuel switching to cheaper natural gas.  It seems to me that these claims then should be more to do with fuel switching than RGGI itself.

Conclusion

The Acadia report concludes:

RGGI has successfully demonstrated the viability of a market-based program to reduce CO2 emissions from the power sector while generating benefits for participating states. RGGI’s experience has disproven the concerns most frequently associated with capping emissions from the power sector. Emissions have declined rapidly, far more dramatically than projected, without stifling economic growth. RGGI’s reinvestment model has benefited the regional economy and increased employment while accelerating deployment of renewable energy and funding energy efficiency programs. The region’s residents now pay lower electricity prices than before the program began and breathe cleaner air.

I don’t think that RGGI has disproven any capping emissions concerns.  In fact, I think it is more likely that as RGGI increases the stringency on its cap at the same time that fuel switching options are used up that we will see what happens when a market-based control program has a restrictive cap.  Given that affected sources only have the option to not run when allowances are not available, I do not think this will end well.

By RGGI’s own numbers despite the apparent value of the energy efficiency investments the fact is that as a CO2 control program the results are expensive, far exceeding any regulatory social cost of carbon value.  If society is to depend upon RGGI investments as the control program to drive emissions reductions on the order of the Green New Deal then enormous costs are inevitable.

[1] Brian Murray and Peter Maniloff, Why Have Greenhouse Emissions in RGGI States Declined? An Econometric Attribution to Economic, Energy Market, and Policy Factors, Duke Nicholas Institute, August 2015. Available at: https://nicholasinstitute.duke.edu/environment/publications/why-have-greenhouse-emissions-rggi-states-declined-econometric-attribution-economic

NYSERDA RGGI-Funded Program Results

The New York State Energy Research and Development Authority (NYSERDA) report New York’s RGGI-Funded Programs Status Report – Semiannual Report through December 31, 2018 (“Status Report”) describes how New York invested the proceeds from the RGGI auctions.  I previously described the report by summarizing the results by sector.  This post provides results by program.

Background

The Regional Greenhouse Gas Initiative (RGGI) is ten years old and 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 touts its success.  I have written extensively on the results and have shown that in fact its successes have been limited.   For example, the fundamental assumption for any carbon pricing program is that the proceeds can be invested effectively.  However, the observed results for New York’s experience in RGGI suggests that this may not be the case.

The Social Cost of Carbon (SCC) 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.  In that law § 75-0113. Value of carbon, states that

      1. No later than one year after the effective date of this article, the department, in consultation with the New York state energy research and development authority, shall establish a social cost of carbon for use by state agencies, expressed in terms of dollars per ton of carbon dioxide equivalent.
      2. The social cost of carbon shall serve as a monetary estimate of the value of not emitting a ton of greenhouse gas emissions. As determined by the department, the social cost of carbon may be based on marginal greenhouse gas abatement costs or on the global economic, environmental, and social impacts of emitting a marginal ton of greenhouse gas emissions into the atmosphere, utilizing a range of appropriate discount rates, including a rate of zero.
      3. In developing the social cost of carbon, the department shall consider prior or existing estimates of the social cost of carbon issued or adopted by the federal government, appropriate international bodies, or other appropriate and reputable scientific organizations.

Therefore, it is entirely fair to use it as a metric to determine if the investments made from carbon pricing income are cost effectively reducing CO2.  I believe New York will base their carbon pricing on a $50 global social cost of carbon at a 3% discount rate so that is the cost benefit effectiveness threshold metric I will use.

NYSERDA RGGI Program Status

The key table in the Status Report is Table 2 Summary of Expected Cumulative Annualized Program Benefits through 31 December 2018.  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.  For the purpose of this post I use the annual numbers because all the reduction targets are based on an historic annual level (usually 1990).  In order to have an appropriate comparison it has to be annual to annual.

The NYSERDA RGGI Status Report Table 2 – Ranked Cost Benefit Ratio Datatable lists all the programs in the NYSERDA report ranked by the annual cost benefit ratio with just that parameter.  It lists 19 programs with associated CO2 reduction benefits and another 18 programs with no claimed CO2 reductions.  None of the 19 programs with CO2 reduction benefits meets the $50 SCC metric for cost effective investments.  Clearly the 18 programs with no claimed reductions would not be able to meet the metric either.

I prepared a brief summary overview of each of the programs in NYSERDA RGGI Program Cost Effectiveness  After reading the report and summarizing them for the overview 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 $58/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 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?

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 this through the general fund it is easy to justify this as a necessary expense for these funds.  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.

Conclusion

Advocates for carbon pricing schemes assume that the investments from the proceeds are worthwhile.  I think these results and the results from New York’s Clean Energy Dashboard demonstrate that is not the case.  The Regulatory Analysis Project (RAP) study: Economic Benefits and Energy Savings through Low-Cost Carbon Management notes that “Many advocates of carbon pricing begin with the proposition that the main point is to charge for carbon emissions “appropriately” and that carbon reductions will surely follow in the most efficient manner. While carbon pricing is a useful tool in the fight against climate change, there is now substantial experience to suggest that wise use of the resulting carbon revenues is equally important, or even more important, if the goal is to actually reduce emissions at the lowest reasonable cost.”

The other concern is the cost of the New York program relative to the social cost of carbon. The NYSERDA RGGI Status Report does not include a single program that reduces carbon dioxide more cost efficiently than $50 per ton.  Because I have shown that eliminating New York CO2 emissions that would provide a reduction, or a “savings,” of approximately 0.0026°C by the year 2050 and 0.0054°C by the year 2100.  Because you cannot measure that small a temperature difference there will be no tangible benefit of the CLCPA.

My primary concern with New York’s clean energy mandates is the cost.  If the cost is small then signaling New York’s virtue might have value. According to the Clean Energy Dashboard, New York has invested $1,051,359,837 through the third quarter of 2019 but can only claim 3,057,131 tons of reductions giving a CO2 invesment efficiency of $343.90 per ton of CO2 equivalent reduced.

It is not clear how advocates of these programs can justify the costs given these results.  The cost efficiency does not even approach the supposed appropriate cost of carbon dioxide and the there is no tangible expected change to global warming.

RGGI – A Cap and Tax Market Program

I think it is wrong to assume that the success of market-based cap and trade pollution control programs for sulfur dioxide (SO2) and nitrogen oxides (NOx) guarantees that market-based trading variations such as cap and dividend or a carbon price will work for carbon dioxide (CO2) reductions.  This post describes the reasons why I think the results from RGGI show that success is unlikely and could end badly.

My Background

I think it is important to understand where I come from on this topic.  You won’t find any papers by me in the literature and I have no background in economics.  However, I have been involved with cap and trade programs since the start of the EPA Acid Rain Program in the early 1990’s.  At the beginning I was responsible for compliance submittals to EPA in a traditional utility but as the electric generation business transitioned to de-regulation in New York my responsibilities grew to helping to develop trading program compliance strategies for affected sources across the country in a non-regulated generating company.  From that time until the present I have evaluated numerous national, regional, and state-only trading programs for SO2, NOx, and CO2.  As a result, I have a niche understanding of the information necessary to critique trading programs from the seldom heard background of affected source staff complying with the rules.

Since my retirement I have turned to blogging with an emphasis on a pragmatic approach to pollution control.  My posts can be very technical because that was necessary to submit substantive comments to regulatory agencies.  I regularly post on the Regional Greenhouse Gas Initiative and update the status of investment proceeds and allowance holdings regularly.  The opinions expressed on this blog and 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.

Cap and Trade

In a standard cap and trade program i a cap is established, allowances are allocated to sources based on historical operations, and affected sources are required to submit an allowance for every ton emitted.  Sources are in compliance if their allowances are less than the cap established.  As long as there are sources that can over-control cost-effectively below their cap limits and trade allowances so that sources that don’t have options to meet their limits, then overall costs are cheaper to meet the cap.  The Environmental Protection Agency’s Acid Rain Program (ARP) is a standard cap and trade program and has been an unconditional success in my opinion.   Annual SO2 emissions are down 92% since 1990 and annual NOx emissions are down 84% since 1990 at a much lower cost than expected at the beginning of the program.

Despite the success of the ARP there are caveats that should be considered.  When the ARP cap was proposed it was assumed that sources would have to install control equipment to significantly reduce SO2 emissions.  However, it turned out that fuel switching was a very effective option because power companies figured out how to burn low-sulfur coal and railroad de-regulation made it cost effective to ship low sulfur coal everywhere.  My point is that the primary reason that the ARP was cheaper and produced greater reductions than expected had much more to do with the fuel switching to meet the cap than trading resulting from pollution control installation providing over-control and generating tradable allowances.

On the other hand, pollution control technology advancements have played a role in the reductions in NOx cap and trade programs.  I feel more comfortable arguing that cap driven technological solutions contributed to the success for those programs than fuel switching.  Importantly though, I believe trading on the open market is not a widespread compliance option.  Rather than depending on the vagaries of the allowance market, power plant operators implemented control programs based on system-wide compliance across their facilities.  The majority of trades necessary for compliance have been within operating systems and not on the open market.

There are some misconceptions about cap and trade programs within the environmental advocacy community.  For example in a description of the cons of cap and trade this author states many of the emissions credits are just given away: “Sometimes these credits are just given away, creating no trade benefit at all. This means it costs a business nothing to expand their emissions and that can harm a local economy, which receives no economic gain in return.”  However, because the cap is lower than the existing emissions even if a business expands their emissions others have to reduce their emissions so the cap is met.  The perception that there is a give-away colors the opinion of traditional cap and trade opponents such as the author’s comment that giving them away creates “no economic gain in return”.  Actually, the allowance credits only have economic value because they are a compliance obligation.  That economic value has to be earned by a facility that invests in pollution control equipment to over-control their emissions.  In doing so they earn the right to sell their excess and fund their investment.

Over time, the concept that the affected sources have received a “windfall” has led to program adjustments where regulators set aside allowances for sale and a variation on cap and trade where the allowances are sold at an auction.  The Regional Greenhouse Gas Initiative (RGGI) is a prime example of cap and auction program.  Note that these programs are commonly branded as “cap and dividend” programs where the money earned is a dividend to the public.

Cap and Auction

It is commonly accepted that RGGI cap and auction program has been successful.  As shown in the RGGI Nine-State EPA CAMD Annual CO2 Emissions table the total emissions have decreased from over 127 million tons prior to the program to just under 75 million tons in 2018, for over a 40% decrease.  However, as I have shown, when you evaluate emissions by the primary fuel type burned it is obvious that emissions reductions from coal and oil generating are the primary reason why the emissions decreased.  Both coal and oil emissions have dropped over 80% since the baseline.  Natural gas emissions increased but because of the inherent low emission rate overall emissions declined.  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.

I think that there are fundamental differences with CO2 trading programs as compared to SO2 and NOx trading programs that make CO2 trading programs inherently suspect.  Most importantly, there are no cost-effective add-on pollution control systems available to reduce CO2 emissions at existing sources so they have limited options to reduce emissions to meet the cap.  For example, there is no evidence that any affected source in RGGI installed add-on controls to reduce their CO2 emissions.  The only other substantive 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.   In other words, if it made financial sense it was implemented long before this program.  Because the cost adder of the RGGI carbon price was relatively small I do not believe that it changed the business case at any affected source to install an efficiency project as part of its RGGI compliance strategy.  Therefore, because affected sources in RGGI and, arguably any other CO2 cap and auction program, do not have any viable control options, they simply treat the cost of purchasing allowances at an auction as a tax.

Conclusion

Cap and trade programs have proven successful for SO2 and NOx.  The primary reason that those programs have reduced emissions at lower costs as opposed to simply requiring every facility to meet a specified limit is that there were technology or fuel-switching options available to the owners and operators of the affected sources that allowed some facilities to over-control and trade with facilities that did not have cost-effective control options.  Note however, that to date, SO2 and NOx trading programs have not constrained allowances beyond the control option capabilities.  Future cap reductions will have to push this limit so I think future cap and trade reductions will not be as cost-effective as in the past.

There are ramifications to the success of the SO2 and NOx trading programs that have not been acknowledged by the regulators or advocates for stringent CO2 cap programs.  If there are no control options then affected sources provide power as long as they have allowances to cover their emissions.  While in an idealized world advocates may think that a fossil-fired plant operate would invest in carbon-free generation, I think the reality is different simply because the owners background, resources, and expertise is mostly inapplicable to fossil generation.  Those owners simply treat the auction cost as a tax.

In the real world, there is another problem if the cap and auction program actually constrains emissions.  Because RGGI is “successful” the latest program review reduced the number of allowances available in the future so we will conduct an experiment to see what happens.  Because the allowances were sold in an open auction anyone can purchase them[1].  There is a problem associated with the allowances purchased in the past and banked for future use (see posts here and here). At this time, non-compliance entities own the majority of the surplus or banked allowances that were sold in earlier auctions.  When the number of allowances available in future auctions is reduced, the inevitable result will be that entities that have compliance obligations will necessarily have to buy allowances on the market with the non-compliance entity knowing that it is a seller’s market.  Obviously, the price will increase markedly to the consumer’s disadvantage.

Finally, a constraining CO2 allowance program will cause the price of allowances and the ultimate cost of energy to consumers to go up in the best case, but in a worse case, allowances are unavailable and affected sources will simply not run.  However, in the worst case the reliability of the electric grid could be endangered if enough affected sources are unable to run.

[1] In the interest of full disclosure, I should note that I own RGGI allowances that I purchased in an auction.

RGGI Lessons to Date – November 2019 Edition

I recently had a simple version of this RGGI article published at Whats Up with That .  This article provides more details and considers other issues with the Regional Greenhouse Gas Initiative (RGGI).  The program is ten years old and has been touted as a successful example of a “cap and dividend” pollution control program and now it is being proposed as the model for a similar control program in the Transportation Control Initiative (TCI).  This post looks at the numbers to see if this praise is warranted and whether RGGI is a good model for the proposed TCI.  Ultimately the question is whether any cap and trade program for carbon dioxide (CO2) can be successful.

I have been involved in the RGGI program process since its inception.  I blog about the details of the RGGI program because very few seem to want to provide any criticisms of the program. I 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.  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.”

The RGGI states developed a cap during a long stakeholder process that was based on historical operations and emissions.  The cap is the regional budget for CO2 emissions.  The Nine-State RGGI Region Emissions, Original RGGI Cap, and the Adjusted RGGI Cap table lists observed emissions and two caps.  The original cap was developed before the fracking revolution changed the cost of natural gas such that it became significantly cheaper than coal and residual oil.  After natural gas prices dropped so much the original projections for emissions were so out of tune to what was happening the RGGI states developed an adjusted cap to account for that development.

In order to determine if RGGI is successful and a program to emulate let’s define some metrics.  The primary goal of the program is to reduce greenhouse gas emissions (GHG) from the electric generation sector so quantifying the emissions change from before the program to the present is a key metric.  Another appropriate metric is cost efficiency per ton of CO2 reduced compared to the Social Cost of Carbon (SCC).  This parameter is an estimate of the economic damages from emitting a ton of CO2 and is widely used to justify GHG programs.  For a comparison metric I will ignore issues with this parameter even though I agree with the following by Paul Driessen and Roger Bezdek: “The SCC assumes fossil-fuel-driven carbon dioxide emissions are causing dangerous manmade climate change, and blames U.S. emissions for every conceivable climate-related cost worldwide. But it fails even to mention, much less analyze, the tremendous and obvious benefits of using oil, gas and coal to power modern civilization.”

In addition to these metrics we have to look at lessons learned and considerations that are not yet resolved to determine whether RGGI is a good model for future control programs.  I address the following: the theory and reality of historical trading programs, control options for affected sources, allowance management, allowance ownership and allowance costs.  Most of these issues were not discussed in the What’s Up with That post.

Theory and Practice

I agree with the argument that economic incentives or market trading programs reduced emissions more cost-effectively than a command and control program.  However, it is instructive to look at the reasons why emission reductions occurred because the theory does not necessarily drive the observed reductions.  It is necessary to review historical performance of RGGI to determine why CO2 emissions reductions have occurred so we can reasonably expect a similar result in other applications like the TCI..

Let me first point out that there is a fundamental difference between the way affected sources operate in emissions trading markets and the way economic theory predicts they should operate.  I believe that electric generating affected source allowance management is different than theory because the affected sources do not treat allowances as a storable commodity or a financial asset in the usual sense of the term.  Instead allowance management is overwhelmingly driven by regulatory requirements for the current compliance period. i.e., do I have enough allowances to cover expected emissions?  Financially it is simply another cost of operating and not a potential profit center.  The important difference is that the academic economic theory holds that affected sources are looking years into the future, but in reality, there is no such long-term time horizon for affected sources.  Their decision on the quantity of allowances to buy is driven by their expected operations in the period between auctions and, at most, the entire compliance period.  Also note that most companies include a small margin for operational variations and regulatory compliance considerations. Because of the differences between the way affected sources operate and the way economic theory says they should operate, I have little faith in the models that predict future allowance margins.

The Acid Rain Program (ARP) was undoubtedly a successful program because it lowered emissions more than expected at far lower costs than predicted.  This program was open and transparent so all emissions and allowance data are available.  In order to meet the initial emission cap target of a 50% reduction, affected sources were awarded half of their historical emissions.  Although it is common practice to vilify this program for giving away the allowances for free the rationale is still valid today. The concept for the acid rain program was that power plants would install SO2 control equipment and if they over-controlled their emissions, they could sell the excess allowances earned to other facilities that could not install the control equipment as cost-effectively.  This approach incentivizes over-control because affect sources can subsidize control equipment investments they made by selling excess allowances.  This cost reduction efficiency brings down overall costs.   It turned out that fuel switching and technological improvements were so effective that far greater than expected reductions occurred.  Fuel switching occurred because technology to burn lower sulfur coal was developed and railroad de-regulation opened the market to transporting coal cost-effectively over very long distances. Another subtle point is that the ARP allowance bank was earned, that is to say excess allowances in the bank represent over-controlling emissions lower than the cap limits.

The Regional Greenhouse Gas Initiative (RGG) is a cap-and-invest program that has been touted as a model for a TCI cap-and-invest trading program because of its “success”.  Although the RGGI states claim that the program is open and transparent the fact is that there is no allowance ownership information available.  There is no question that CO2 emissions have come down in the RGGI states since the inception of the program but it is important to determine why they have come down.  I will address that point later on.  There is a fundamental difference in the way that affected sources treated RGGI as opposed to ARP, namely ARP was considered a control program and RGGI was considered a tax.  Because there are no cost-effective add-on controls for CO2 at existing power plants there are limited options to meet the cap.  Because allowances all have to be purchased and the incremental cost was low plant control programs to reduce CO2 through efficiency were not implemented.  The allowance bank does not represent earned reductions below the cap limits.  Instead the bank is made up of allowances purchased at auctions and on the market.  The RGGI states in their program reviews were very concerned that the allowance bank was large and have taken steps to adjust the allowances sold at auction to force the bank smaller.  In the naïve belief that RGGI investments significantly reduced emissions the RGGI states have also reduced the cap going forward.  As a result. RGGI going forward is going to be significantly different that RGGI in the past and that has ramification on its value as a model for TCI or any other future emissions trading program.

I noted above the distinction between the ARP “earned” allowance bank and the RGGI allowance bank.  Because the ARP affected sources over-controlled emissions below their cap levels, they earned the allowance bank.  That means the bank represents surplus allowances that are not needed for compliance so it does not matter who owns them.  On the other hand, all RGGI allowances were purchased at one time or another by anyone who offered a high enough price at an auction or on the market.  Because allowance ownership is not transparent, we only know the number of allowances owned in the following three categories:

      • 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.

To this point in 2019 the affected sources with compliance obligations have been able to get the allowances needed to cover their emissions from auctions and the market.  However, at some point going forward this will change and it will make a difference.  I have addressed the status of RGGI emissions and allowances elsewhere but briefly because the allowance cap is being reduced so much, the affected sources are going to have to go to the investors without compliance obligations.  This is uncharted territory and, at a minimum, I expect that the allowance prices will spike upwards.  Note that this price spike provides no dividends for CO2 reduction investments because the dividends are earned at the initial sale.  But it could be even worse if the entities without compliance obligations withhold allowances and create a shortage such that affected sources do not have enough allowances to run.

RGGI supporters who claim it is successful point to emission reductions of 40 to 50%.  In order to evaluate the RGGI emissions reduction claims I used data from the Environmental Protection Agency Clean Air Markets Division air markets program website.  Emissions data from the electric generating unit (EGU) sector are available from before RGGI started to the present, so I downloaded all the EGU data for the nine states currently in RGGI from 2006 until 2018.  In order to establish a baseline, I calculated the average of three years before the program started.  As shown in the RGGI Nine-State EPA CAMD Annual CO2 Emissions table the total emissions have decreased from over 127 million tons prior to the program to just under 75 million tons in 2018, for over a 40% decrease.  Note that these numbers are slightly different than the previous table because different sets of sources are used.

However, when you evaluate emissions by the primary fuel type burned 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 80% since the baseline.  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.

As a result, 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 update.  In order to determine reduction efficiency, I had to sum the values in the previous reports because the most recent report only reported lifetime benefits.  In order to account for future emission reductions against historical levels the annual reduction parameter must be used.  The Accumulated Annual Regional Greenhouse Gas Initiative Benefits table lists the sum of the annual avoided CO2 emissions generated by the RGGI investments from three previous reports.  The total of the annual reductions is 2,818,775 tons while the difference between the baseline of 2006 to 2008 compared to 2017 emissions is 59,508,436 tons.  The RGGI investments are only directly responsible for less than 5% of the total observed reductions!

In order to argue that RGGI emission reduction programs are a good investment relative to the expected societal cost of CO2 emissions the Social Cost of Carbon (SCC) parameter can be used.  SCC values range widely depending on assumptions, but if you use a discount rate of 3% and consider global benefits like the Obama-era Environmental Protection Agency (EPA) did then the 2020 SCC value is $50.  The Accumulated Annual Regional Greenhouse Gas Initiative Benefits table lists the data needed to calculate the RGGI CO2 reduction cost per ton.  From the start of the program in 2009 through 2017 RGGI has invested $2,527,635,414 and reduced annual CO2 emissions 2,818,775 tons.  The result, $897 per ton reduced, is 18 times than the current EPA SCC value for United States benefits.

There is another key lesson from RGGI that applies to any CO2 emissions marketing control program. There is an important difference between cap and trade programs for SO2 and nitrogen oxides (NOx) emissions and cap and invest programs for GHG emissions.  There are add-on control options for SO2 an NOx whereas there isn’t any cost-effective option for CO2.  In the ARP the affected sources could directly control their compliance.  In RGGI there were limited direct options for the affected sources and, going forward especially, they are going to have to rely on indirect reductions, i.e., someone will build a zero-emitting plant that displaces enough output from a fossil plant that enough allowances are available to cover the affected source requirements.  The ultimate control strategy for a emissions marketing CO2 control program is to run less and hope power is available from somebody else.

Conclusion

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.  Fuel switching 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 program.

I want to highlight a related point.  In order to determine emission reduction efficiency from the RGGI investment reports, I had to sum the values in the previous reports because the most recent report only reported lifetime benefits.  The RGGI website only lists the lifetime benefits of RGGI investments in 2017 but those parameters are useless for the most obvious application.  In order to account for future emission reductions against historical levels the annual reduction parameter must be used.  It is hard to not believe that excluding the accumulated annual reductions was deliberate because the numbers are so poor.

As a model for future programs, RGGI successfully proved that a regional entity could implement a cap and auction program.  However, the actual cause of observed reductions and ability of affected sources to make the reductions proposed should be considered before other programs adopt the RGGI model.  I considered the use of the RGGI model in Transportation Climate Initiative Draft Framework Cap and Invest Caiazza Comments  that were submitted as part of their stakeholder process.  I concluded that there are so many differences between a program for mobile sources and electric generating units that simply implementing a tax and investing the proceeds as proposed would be less likely to have serious problems with unintended consequences and unanticipated issues.

As a result of the issues raised in this post, I believe that it is fair to ask whether any cap and trade program for CO2 can be successful if the ultimate goal is a significant reduction in emissions.  Because CO2 from fossil fuels is such an integral part of our lifestyles a large reduction in emissions is going to have to require changes in lifestyles.  Therefore, the question becomes will people accept lifestyle changes such as giving up the gas automobile with all its current advantages over any alternative as a result of indirect CO2 pricing?