Pragmatic Environmentalist of New York

The Regional Greenhouse Gas Initiative (RGGI) is a carbon dioxide control program in the Northeastern United States.  One aspect of the program is a program review that is a “comprehensive, periodic review of their CO2 budget trading programs, to consider successes, impacts, and design elements”.   I recently posted an article describing my comments to RGGI addressing the disconnect between the results of RGGI to date relative to the expectations in the RGGI Third Program Review modeling.  This post describes other comments submitted to RGGI.

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. According to RGGI:

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia to cap and reduce power sector CO₂ emissions. 

RGGI is composed of individual CO₂ Budget Trading Programs in each participating state. Through independent regulations, based on the RGGI Model Rule, each state’s CO₂ Budget Trading Program limits emissions of CO₂ from electric power plants, issues CO₂ allowances and establishes participation in regional CO₂ allowance auctions.

More background information on cap-and-trade pollution control programs and RGGI is available from the Environmental Protection Agency and my RGGI posts page.  Proponents of these programs consider them silver bullet solutions.  However, I agree with Danny Cullenward and David Victor’s book Making Climate Policy Work  that the politics of creating and maintaining market-based policies for Greenhouse Gas (GHG) emissions “render them ineffective nearly everywhere they have been applied”.

Third Program Review

The RGGI participating states hosted two public meetings on September 26, 2023, to discuss updates on the Third Program Review and electricity sector analysis.  I am not going to repeat my description of the presentations here because I covered the details in my article describing my concerns and comments.

I am primarily concerned with the RGGI States Third Program Review request for comments about one program change and the plans for the trajectory of future emissions reductions.  The RGGI States recommended shifting the compliance period to annual compliance from the current three-year period.  A major concern of the program review is future allowance availability so the decarbonization timeline for the electricity sector was considered.  This is complicated because participating State timelines vary, implementation of offshore wind deployment affects decarbonization rates and grid-scale battery storage deployment, duration, and supply certainties affect the outcomes.

The RGGI States have not proposed their plans for the Third Program Review.  In order to address allowance availability, the RGGI States modeled the future electric system.  They described three key observations from the modeling results that support the idea that the RGGI allowance availability can be made more stringent.

1. Modeling shows how current state decarbonization and renewable requirements can significantly reduce emissions;
2. Federal incentives for clean energy have the potential to rapidly transform the RGGI region generation mix; and
3. Scenarios modeled to date show relatively low allowance prices compared to the ECR/CCR price triggers in the Model Rule

The comments received are available on the RGGI website.  The remainder of this article describes the comments submitted.  I find these comments interesting because they provide more information about the underlying biases of those individuals and organizations who took the time to comment than their applicability to the RGGI issues raised.

Biomass Considerations

Three comments from individuals in Vermont complained about biomass power plants and the existing provision for “eligible” biomass to be treated as having zero emissions.  I have not followed RGGI biomass issues and the potential for offsets much so I cannot provide any context. It appears that these commenters don’t like biomass facilities.

• Ashley Adams
• Bob Atchinson 
• Pike Porter

Emission Traders

Independent energy marketing and trading firm Mercuria Energy provided comments that are self-serving.  The Mercuria Energy America comments recommended the following:

• Implement the rule change as soon as possible,
• Net-zero by 2035 is the best option,
• Supply scenarios could be merged if needed,
• Revise the Emissions Containment Reserve and Cost Containment Reserve trigger prices, and
• Caps should be aligned to the existing adjusted cap.

All these recommendations have market implications that emission traders could exploit.

Supporting the Narrative

Two sets of comments generally followed the narrative provided by the RGGI States in their presentations.  The States want to tighten the allowance caps and incorporate an environmental justice component.  These comments aligned with those preferences.

Comments from Business Leaders recommended aligning the caps with necessary climate ambition, incorporating input from environmental justice communities and EJ advisory groups, air quality monitoring, and investing at least 40% of revenues in EJ communities.  The business leaders included: Autodesk, Inc; Ben & Jerry’s; Char Magaro Designs; Danone North America; DSM Firmenich North America; Franklin Energy; Good Start Packaging; Habitus Incorporated; Haverford College; Miller/Howard Investments, Inc.; New Balance; New Jersey Sustainable Business Council; New York City Office of the Comptroller; Oaktree Development; Sonen Capital; Steve Harvey Law, LLC; Studio G Architects; Sunowner Inc.; Sustainable Advisors Alliance LLC; The Green Engineer, Inc; The Stella Group, Ltd.; TripZero; Unilever United States; and Zevin Asset Management.

The Green Energy Consumer Alliance comments advocated for ambitious emission reduction targets and raised additional matters to consider in this program review requesting a presentation with sufficient time for public input on topics such as the cost containment reserve, emission containment reserve, allowance banking beyond 2035 in the zero by 35 scenario, and environmental justice. 

It is interesting to me that there are non-profit organizations who submitted comments.  The “Business Leaders” comments were “organized” by Ceres who is “transforming the economy to build a just and sustainable future.”   Ceres managed to get funding to submit comments on RGGI from companies that are only peripherally affected.  The Ceres IRS Form 990 says that they have 221 employees, a $22 million payroll, and spent $2.3 million for fundraising in 2022.  Apparently, they have a successful business model because they got 24 companies to sign the comment letter and presumably provide funding for the privilege.  On the other hand, the Green Energy Consumer Alliance has only 23 employees, a $1.3 million payroll, and only spent $60K for fundraising.  Their motivation for commenting was similar.

Supporting Advocacy

Seven organizations submitted comments under the banner Frontline Communities in the Commonwealth of Pennsylvania.  Their letter made seven recommendations:

• Establish strong guidance and an implementable policy framework encouraging states to stablish, maintain, resource, and empower Equity Advisory Boards.
• Strongly encourage states to lead and complete equity analyses.
• Outline and encourage reinvestment priorities for frontline communities
• Improve public participation practices.
• Close loopholes that permit facilities with multiple small combustion turbines to avoid reducing overall emissions.
• Expand qualifying polluters and reject false solutions.
• Eliminate offsets in order to drive real emission reductions

I am not impressed with the content of these comments.  The relevant RGGI issues are addressed last, almost as an afterthought.  Moreover, they consist mostly of buzz words and slogans.  There are loopholes foisted on unsuspecting innocents that surely have major impacts but they never document what they are.  They reject false solutions like biomass, refuse-derived fuel, and trash incineration without acknowledging that there might be co-benefits associated with those technologies.

My impression is that their primary purpose for commenting is to plead for support for their organizations.  The first four recommendations all are linked to advocacy support which I am sure they will be glad to provide.  The comments go so far as to suggest that 100% of the revenues should be invested in front-line communities.  My comments emphasized the point that future emission reductions in the RGGI states are going to have to rely on wind and solar resources displacing the affected source operations which is going to be hard enough to do without a limitation on where the auction revenues must go.

Class by Themselves Comments

Comments by the Nature Conservatory rate their own section.  This is a global charity and their IRS Form 990 says that they have a total revenue of $1.3 billion, 4,052 employees, a $441 million payroll, and spent $146 million for fundraising in 2022.   On the face of it, these comments follow the narrative espoused by CERES and Green Energy Consumer Alliance.  Closer inspection shows that there is a self-serving exception to the points made by other advocates.  The comments also show an amazing level of naivety and incompetence as shown below.

The Nature Conservatory (TNC) comments addressed the “loophole” for generators greater than 25 MW which they said should be closed by expanding to all generators 10 MW and larger and requested additional modeling of carbon capture and storage rules to better understand CCS impacts to the RGGI program and affected communities. 

The offsets that other organizations consider “false solutions” are lauded:

TNC believes that the RGGI program could better utilize potential offset projects from natural climate solutions, helping achieve net-zero emissions while better valuing our natural environment on the pathway towards a clean economy.

Turns out that “TNC has more than 20 years of experience pioneering best practices for natural climate solutions and carbon projects around the world”.  Cynics like me think they want to expand their solutions to this market too.

The following comment was provided to address the proposal to change the compliance period:

There is considerable flexibility in allowance compliance for participating entities, and we would recommend that this program review consider adjusting the compliance period language towards annual compliance. Annual compliance criteria would better account for annual fluctuations and market conditions in energy production, as well as create better stability in allowance prices and funding programs. Currently, compliance is evaluated at the end of each three-year control period by RGGI Inc through their CO2 Allowance Tracking System (COATS), with fines levied by participating states on facilities for non-compliance. RGGI states also have an interim control period compliance requirement, which requires each participating facility to hold allowances equal to 50 percent of their emissions by the end of the 2nd year of the compliance period. Such flexibility allows for secondary allowance markets to benefit from compliance requirements, but these benefits did not extend to participating states. During the RGGI September 26 public meeting, this was a topic supported by the RGGI states, and they concluded that the benefits of implementing annual compliance outweigh any loss of flexibility.

This word salad of regurgitated text from the RGGI documents is embarrassing.  The first sentence just repeats the arguments in the Topics for Consideration document.  The next sentence: “Annual compliance criteria would better account for annual fluctuations and market conditions in energy production, as well as create better stability in allowance prices and funding programs” is wrong on every count.  Carbon dioxide emissions from RGGI affected sources are directly related to how much the plants operate and weather correlates strongly with electric load and plant operation.  The three-year compliance period smooths out the annual fluctuations.  An annual compliance period cannot account for annual fluctuations which means the market conditions will be more volatile.  A market that bounces between annual deficits and surpluses is anything but stable.  The paragraph goes on to accurately describe the flexibility mechanisms in the three-year compliance period approach.  Then the author states: “Such flexibility allows for secondary allowance markets to benefit from compliance requirements, but these benefits did not extend to participating states”.  I think it is a mistake to disconnect the secondary allowance market from the market as a whole because the secondary and primary markets both have to be healthy for the RGGI auction system to work well.  The RGGI States certainly benefit from a healthy market unless the line of reasoning is that if the market is uncertain and causes higher allowance prices the RGGI States make more money.  That would indicate a failure to understand that citizens of the RGGI states will pick up the tab. 

Incredibly the comments get worse.  Under the topic of “Environmental Justice Considerations” the recommendation is to “Increase funding for emission monitoring programs to install monitors for more participating generators.”  The rationale states:

Participating generators are required to hold allowances equal to their CO2 emissions, as determined by the EPA’s Clean Air Markets Program (CAMP) monitors or a calculation of heat rate and fuel consumption. However, over two-thirds of RGGI plants do not have any active air quality monitoring sites within a 3-mile radius, and miscalculation of emissions based on available data make accurate representation of actual emissions difficult.

This line of reasoning for air quality monitoring has been advocated by naïve environmental justice advocacy organizations but I would expect that an organization that employs thousands would have a better understanding of the basics of air quality reporting and permitting.  All RGGI sources report their emissions to EPA in a system that meets the highest levels of transparency and accuracy.  There is a red herring argument that implies that because there isn’t an air quality monitor near the RGGI sources that they are getting away with disproportionate impacts.  All RGGI sources have had to repeatedly prove in their permit applications that their emissions will not contravene the National Ambient Air Quality Standards (NAAQS).  The modeling and analyses associated with those demonstrations trace back to periods when there were air quality monitoring systems around many of the facilities.  Once the ambient monitoring proved that there were no issues with the NAAQS then the ambient monitoring requirements were dropped. 

The last sentence displays a complete lack of understanding relative to emissions and air quality impacts.  The phrase “miscalculation of emissions based on available data make accurate representation of actual emissions difficult” suggests that if ambient air quality measurement were available then better estimates of actual emissions would be possible.  While it is possible to estimate emissions from air quality measurements, the methodology is loaded with uncertainty.  In order to do the calculation, you must also monitor the meteorological conditions between the source and monitoring station.  Given the variation in wind speed, wind direction, and stability those variations make this calculation approach likely to produce results laden with errors and uncertainty.  Air quality monitoring in disadvantaged communities can address local emissions issues but I am confident that issues with the air quality standards due to the RGGI sources will not be found.  Using air quality monitoring do estimate emissions from RGGI sources is an absurd proposition given that the RGGI sources directly measure emissions in the stacks themselves using equipment and standards that meet the very high standards of the EPA.

RGGI Affected Sources

There were two affected source comment letters.

Tenaska, Inc. owns and operates gas turbines in MA, PA and VA.  Their comments argued against an annual compliance period and they suggested adding an auction after the end of the year but before the compliance true-up date.  Their comments on the Electricity Sector Analysis – Budget Cap and Allowance Supply Scenarios stated:

RGGI is evaluating four budget cap/allowance supply scenarios, including two that would reach zero by 2035 and 2040. We strongly caution adoption of either of these scenarios given the strong uncertainty regarding availability of zero-carbon resources and the need for fossil-based, dispatchable resources to provide the required generation and to support certain electrification goals.

We also point out the scope of the EPA’s proposed CAA §111 rules for new and certain existing fossil fuel-fired electric generating units . The new source rule would not require emission reductions for units with annual capacity factors less than 20% and would not require 100% reductions from any new source. The existing unit proposal would cover only large, frequently operated units. The zero by 2035/2040 RGGI proposals would prohibit any of these units, new or existing, from operating after those dates. Several ISOs/RTOs expressed concern with resource adequacy regarding the CAA §111 proposal and would no doubt have serious concerns with the RGGI proposals. We recommend RGGI take a cautious approach when attempting to predict the power generation needs and resource-mix more than a decade into the future. RGGI need not be more stringent than the EPA.

The Environmental Energy Alliance of New York is an ad hoc, voluntary group of New York electric generating companies, transmission/ distribution companies and other providers of energy services that address environmental initiatives.  In the interest of full disclosure, I was the Director of the organization from 2010 to 2017 and still provide technical support as needed.  The comments from the Alliance addressed several issues.  They argued that the flexibility inherent in the three-year compliance period was needed in the future because of upcoming changes to the RGGI allowance market and pointed out that the RGGI States rationale for changing was weak.  A big concern of the New York affected sources is that changes to the allowance trajectory schedule should address the recent cancellations of substantial amounts of offshore wind.  That affects the operations of RGGI-affected sources and should be considered by the RGGI modeling evaluation.  Another component of the transition to “zero-emissions” resources is the need for a presently unavailable dispatchable emissions-free resource.  Ignoring the need for this resource before 2035 risks underestimating the capacity of wind and storage required to maintain the grid so this should also be considered in the RGGI modeling evaluation. 

Pragmatic Environmentalist Comments

I also submitted personal comments that I described  in an earlier post.  I explained that I am afraid that the RGGI States are placing so much reliance on their analysis results that they could propose unrealistic allowance reduction trajectories.  It is naïve to treat any model projections of the future energy system without a good deal of skepticism because the electric grid is so complex and currently dependent upon dispatchable resources but the anticipated future grid will rely on wind and solar resources that cannot be dispatched.  Replacement of RGGI-affected sources with intermittent and diffuse wind and solar resources that cannot be dispatched is an enormous challenge with likely unintended consequences.  Therefore, the modeling results should be considered relative to historical observations. 

Since the beginning of the RGGI program, RGGI funded control programs have been responsible for less than seven percent of the observed reductions.  My analyses indicate that most of the observed reductions of emissions are due to fuel switching from coal and residual oil to natural gas and that there are few opportunities for additional switching reductions in most RGGI States.  That means that future reductions are going to have to rely on displacing existing generator operations with zero-emission alternatives.  Ostensibly the auction revenues from RGGI are supposed to encourage development of those alternatives.  I have  found that when the sum of the RGGI investments is divided by the sum of the annual emission reductions the CO2 emission reduction efficiency is $927 per ton of CO2 reduced.  I think that cost per ton reduced is too high to afford to develop the resources necessary for the reductions required to meet the aggressive allowance trajectories proposed.

Conclusion

There were not a lot of comments submitted in response to RGGI Third Program Review.  Most of the comments that were submitted addressed special interests including issues with biomass, explicitly supporting their emissions trading business model, and implicitly supporting the narrative associated with energy transition club that is a big business nowadays. I was disappointed that comments from Pennsylvania advocacy organizations ranked handouts to organizations above the needs of the disadvantage communities they claim to represent. The Nature Conservancy comments were outstanding in a bad way because they not only explicitly pandered to their offsets products but also showed a lack of understanding of air pollution control strategies and requirements that made their comments worthless.

My concerns and those of the affected sources are associated with the future viability of RGGI. The modeling suggests that aggressive allowance reduction trajectories are feasible.  I do not think that the RGGI States acknowledge that the program has not been the primary driver of observed emission reductions and that the auction revenues to date have not been cost-efficient which calls that conclusion into question.  Furthermore, the modeling has not addressed concerns associated with the expectations of zero-emissions technology deployment.  Unless these concerns are considered in the Third Program Design Review recommendations there may be adverse ramifications including higher than expected prices and compliance issues.

The Regional Greenhouse Gas Initiative (RGGI) is a carbon dioxide control program in the Northeastern United States.  One aspect of the program is a program review that is a “comprehensive, periodic review of their CO2 budget trading programs, to consider successes, impacts, and design elements”.  On September 26, 2023 the RGGI States hosted two webinars describing technical modeling & analyses that examined the electricity market, emissions, and economic impacts of potential changes to RGGI.  This post describes the disconnect between the results of RGGI to date relative to the expectations in the RGGI Third Program Review modeling that I addressed in my comments to RGGI.

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. According to RGGI:

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia to cap and reduce power sector CO₂ emissions. 

RGGI is composed of individual CO₂ Budget Trading Programs in each participating state. Through independent regulations, based on the RGGI Model Rule, each state’s CO₂ Budget Trading Program limits emissions of CO₂ from electric power plants, issues CO₂ allowances and establishes participation in regional CO₂ allowance auctions.

More background information on cap-and-trade pollution control programs and RGGI is available from the Environmental Protection Agency and my RGGI posts page.  Proponents of these programs consider them silver bullet solutions.  However, I agree with Danny Cullenward and David Victor’s book Making Climate Policy Work  that the politics of creating and maintaining market-based policies for Greenhouse Gas (GHG) emissions “render them ineffective nearly everywhere they have been applied”.

Third Program Review

The RGGI participating states hosted two public meetings on September 26, 2023, to discuss updates on the Third Program Review and electricity sector analysis.  Meeting materials included the following: Meeting Agenda PDF; Presentation Slides PDF; Topics for Consideration PDF; Draft RGGI Emissions Dashboard ArcGIS Dashboard; RGGI Emissions Dashboard Draft User Guide PDF; Meeting Recording – Session 1, Meeting Recording – Session 2 and Draft IPM Matrix Case Results XLSX.  

The RGGI States contracted ICF to analyze the different scenarios to inform the options for future RGGI.  ICF has a proprietary model, the Integrated Planning Model (IPM^©), that has been used by the RGGI States since the inception of the program and which EPA uses to evaluate many of its control policies.  According to ICF:

ICF’s Integrated Planning Model provides true integration of wholesale power, system reliability, environmental constraints, fuel choice, transmission, capacity expansion, and all key operational elements of generators on the power grid in a linear optimization framework. The model captures a detailed representation of every electric boiler and generator in the power market being modeled.

In March the RGGI States explained that they planned to use IPM to evaluate several issues.  One problem is “fluidity of state participation”.  Nine states have been members of RGGI since its inception.  New Jersey was a charter member, got out, and now is back in; Virginia was in but is now getting out; and  Pennsylvania is trying to get in but participation has been stalled by litigation.  RGGI planning must address climate and complementary energy policies that will dramatically impact electricity load such as electric vehicles and EV infrastructure, electrification in the building sector, and aggressive energy efficiency efforts.  A major concern of the program review was allowance availability so the decarbonization timeline for the electricity sector was considered.  This is complicated because participating State timelines vary, implementation of offshore wind deployment affects decarbonization rates and grid-scale battery storage deployment, duration, and supply certainties affect the outcomes.

The September 26 webinar described three key observations from the modeling results:

1. Modeling shows how current state decarbonization and renewable requirements can significantly reduce emissions;
2. Federal incentives for clean energy have the potential to rapidly transform the RGGI region generation mix; and
3. Scenarios modeled to date show relatively low allowance prices compared to the ECR/CCR price triggers in the Model Rule

The RGGI States have not proposed their plans for the Third Program Review.  The modeling observations support the idea that the RGGI allowance availability can be made more stringent.  So much so that the modeling plans changed from the spring to add a more stringent trajectory to reach zero emissions by 2035 rather than just looking at a zero emissions by 2040 trajetory.  My comments addressed these key observations . 

I will summarize my concerns below but first it is necessary to review RGGI results to date.

RGGI Results to Date

There is an unfortunate disconnect between the results of RGGI to date relative to the expectations in the Third Program Review.  During the September 26 meeting the explanation of cap-and-trade systems stated that “States reinvestthe proceeds in decarbonization and other programs to deliver benefits to their communities.”  What was missing was any mention of the efficacy of those investments relative to the emission reductions observed. 

The primary cause of the observed RGGI emission reductions has been the fuel switch from coal and residual oil to natural gas.   Table 1 lists the emissions by fuel types for the nine RGGI states that have been members since the start.  I believe that RGGI had very little to do with these fuel switches because fuel costs are the biggest driver for operational costs and natural gas was cheaper.  The cost adder of the RGGI carbon price to date has been too small to drive the conversions from coal and oil to natural gas.

Table 1: RGGI Program Unit CO2 Emissions (tons) by State and Year

RGGI sources within the nine-state region have already implemented most of the coal and residual oil fuel switching opportunities available so this control strategy will be less impactful in the future.  For example, in New York coal-fired electric generation has been banned and the remaining units that burn residual oil primarily run to only provide critical reliability support so their emissions are not expected to change much from current levels.  In the future, RGGI affected source emission reductions will rely on the displacement of natural gas fired units with wind and solar zero emitting sources.

The 2021 investment proceeds report released on June 27, 2023 provides insight into the success of RGGI investments as an emission reduction tool.  The report breaks down the investments into five major categories:

Energy efficiency makes up 51% of 2021 RGGI investments and 55% of cumulative investments. Programs funded by these investments in 2021 are expected to return about $418 million in lifetime energy bill savings to more than 34,000 participating households and over 570 businesses in the region and avoid the release of 2.3 million short tons of CO2.

Clean and renewable energy makes up 4% of 2021 RGGI investments and 13% of cumulative investments. RGGI investments in these technologies in 2021 are expected to return over $600 million in lifetime energy bill savings and avoid the release of more than 1.7 million short tons of CO2.

Beneficial electrification makes up 13% of 2021 RGGI investments and 3% of cumulative investments. RGGI investments in beneficial electrification in 2021 are expected to avoid the release of 370,000 short tons of CO2 and return nearly $164 million in lifetime savings.

Greenhouse gas abatement and climate change adaptation makes up 11% of 2021 RGGI investments and 8% of cumulative investments. RGGI investments in greenhouse gas (GHG) abatement and climate change adaptation (CCA) in 2021 are expected to avoid the release of more than 10,000 short tons of CO2 and to return over $20 million in lifetime savings.

Direct bill assistance makes up 14% of 2021 RGGI investments and 13% of cumulative investments. Direct bill assistance programs funded through RGGI in 2021 have returned over $29 million in credits or assistance to consumers.

There is an important caveat to the emission reductions reported in the report.  The RGGI compliance metric is annual emissions and the above quote lists the lifetime emission reductions.  The sum of the lifetime emission reductions from the 2021 investments is 4.38 million tons but the annual emission reductions due to RGGI investments were only 235,299 tons (Figure 1).  The 9-state allowance allocation annual reduction in 2021 was 2,275,000 allowances so RGGI was only responsible for around 10% of the emission reductions required.

Figure 1: Table 1 from the 2021 investment proceeds report

The results in 2021 are consistent with historical observations.   To make a comparison to the CO2 reduction goals I had to sum the annual values in the previous reports because RGGI does not report the annual RGGI investment CO2 reduction values accumulated since the beginning of the program.  Table 2  lists the annual avoided CO2 emissions generated by the RGGI investments from previous reports.  The accumulated total of the annual reductions from RGGI investments is 3,893,925 tons while the difference between the three-year baseline of 2006-2008 and 2021 emissions is 58,334,373 tons.  The RGGI investments are only directly responsible for 6.7% of the total observed annual reductions over the baseline to 2021 timeframe! 

Table 2: Accumulated Annual RGGI Benefits Through 2021

Dividing the total RGGI investments by the total tons reduced provides the cost per ton reduced.  The cumulative RGGI investment cost effectiveness is $927 per ton reduced.  That is far more than the Resources for the Future Social Cost of Carbon estimate of $185 per ton and indicates that costs exceed societal benefits. 

Concerns with Results – Recommendations are highlighted in bold

 There is a unique aspect of the Third Program Review modeling process that has not been available previously.  There are two independent modeling projections of the New York electricity system resources necessary to meet a zero-emission target by 2040.  The New York Independent System Operator (NYISO) has evaluated scenarios that project the resources necessary to achieve the New York Climate Leadership and Community Protection Act goal of a zero-emissions electricity generating system by 2040.  New York’s Scoping Plan was guided by an  Integration Analysis that modeled the transition.  Comparison of those projections with the Integrated Planning Model (IPM) projections enables a check on how these requirements can reduce emissions using different methodologies.

  The most glaring difference between the RGGI IPM modeling of New York and the New York analyses is the generation fossil-fuels sector (Table 3).  The table subtracts the NYISO Resource Outlook Scenario 1 projected generation from the RGGI IPM modeling allowance supply scenarios for Assumption Set B and Integration Analysis Scenario 2.  The percentage difference shows that the IPM projects substantially more generation than NYISO and the Integration Analysis.

Table 3: Fossil Resource Sector Difference in Generation (GWH) Between the NYISO Resource Outlook and the RGGI IPM and Scoping Plan Integration Analysis Strategic Use of Low-Carbon Fuels Scenario

Because RGGI affected source emissions are so strongly correlated with operations these higher operating rates mean that the RGGI IPM modeling projects lower fossil-fired emissions than either model.  In Table 4 I estimated New York CO2 emissions by multiplying these projected generation differences times the 2022 calculated CO2 emission rate per MWh.  In the NYISO Resource Outlook column the emissions are relative to those scenario differences.  Similarly, the emission differences in the Integration Analysis are relative to the Scoping Plan projections.  IPM underestimates the fossil sectors emissions significantly.

Table 4: Fossil Resource Sector Difference in Projected CO2 Emissions (tons) Between the RGGI IPM and NYISO Resource Outlook and Scoping Plan

The RGGI States chose not to include any allowance supply numbers so I was forced to make my own estimates to determine the significance of these emissions.  I projected allowance availability using a linear interpolation between 2023  allowance allocations and zero by 2035 and 2040.  For the zero by 2040 allowance supply scenario, the 2030 emissions difference represents 27% of my estimated allowance allocation.  For the zero by 2035 allowance supply scenario, the 2030 emissions difference represents 42% of my estimated allowance allocation.  This suggests that this modeling difference needs to be reconciled to determine its impact on the RGGI State allowance allocation trajectory proposal. 

There is another issue associated with the modeling results.  The ICF description of these modeling results notes that “due to the stringency of the program after 2040, the model shows an over-compliance of emissions in the early years (2025-2030) and banking of those allowances for when the cap is reduced in 2035 and beyond. “  This is an artifact of the perfect foresight methodology of IPM and, I believe, is unlikely to occur.

I think this is wrong because the modeling approach claims affected sources “over-comply”.  RGGI sources do not “over-comply” but rather acquire allowances to meet their compliance obligations with a slight surplus to ensure compliance  My primary concern is New York and in New York sources that could fuel switch to natural gas have already done so.  They cannot directly affect their compliance except by limiting operations.  Thus, RGGI sources in NY are at the point where they must rely on renewable energy to displace their need to operate.  This means that they only purchase the allowances they expect to use for their compliance obligations plus a small compliance cushion. 

Based on the modeling description, IPM “perfect foresight” projects results over longer planning horizons than used in practice.  I believe that affected-sources across RGGI treat the allowance requirements as a short-term, no more than a couple of compliance periods, compliance obligation.  It is highly unlikely that most affected sources are making plans beyond short-term compliance periods so the idea that affected source would over-comply in early years for more stringent limits ten years ahead is incorrect.  The open question is how does this affect the allowance trajectories.  It might also account for differences between the NYISO and Integration Analysis projections.  The best way to reconcile this is in an open public forum with the modeling groups.

  Renewable developments are struggling due to soaring interest rates and rising equipment and labor costs.  Reuters describes two “procured” projects in the RGGI region that have been cancelled:

(AGR.N), a U.S. subsidiary of Spanish energy firm Iberdrola (IBE.MC), said it filed agreements with power companies in Connecticut to cancel power purchase agreements for Avangrid’s proposed Park City offshore wind project.

               “One year ago, Avangrid was the first offshore wind developer in the United States to make public the unprecedented economic headwinds facing the industry,” Avangrid said in a release.

               Those headwinds include “record inflation, supply chain disruptions, and sharp interest rate hikes, the aggregate impact of which rendered the Park City Wind project unfinanceable under its existing contracts,” Avangrid said.

                              Avangrid has said it planned to rebid the Park City project in future offshore wind solicitations.

               Also over the past week, utility regulators in Massachusetts approved a proposal by SouthCoast Wind, another offshore wind developer, to pay local power companies a total of around $60 million to terminate contracts to provide about 1,200 MW of power.

  In New York, on October 12, 2023 the Public Service Commission turned down a request to address the same cost issues. Times Union writer Rick Karlin summarizes:

               At issue was a request in June by ACE NY, as well as Empire Offshore Wind LLC, Beacon Wind LLC, and Sunrise Wind LLC, which are putting up the offshore wind tower farms.

               All told, the request, which was in the form of a filing before the PSC, represented four offshore wind projects totaling 4.2 gigawatts of power, five land-based wind farms worth 7.5 gigawatts and 81 large solar arrays.

               All of these projects are underway but not completed. They have already been selected and are under contract with the New York State Energy Research and Development Authority, or NYSERDA, to help New York transition to a clean power grid, as called for in the Climate Leadership and Community Protection Act, approved by the state Legislature and signed into law in 2019.

Developer response to the PSC decision suggests that “a number of planned projects will now be canceled, and their developers will try to rebid for a higher price at a later date — which will lead to delays in ushering in an era of green energy in New York”. Karlin also quotes Fred Zalcman, director of the New York Offshore Wind Alliance: “Today’s PSC decision denying relief to the portfolio of contracted offshore wind projects puts these projects in serious jeopardy,”

These issues impact the proposed RGGI allowance trajectories based on the “potential to rapidly transform the RGGI region generation mix”. The IPM modeling projects significant emission reductions presuming that procured renewable energy projects will come on line consistent with the contracts at the time of the modeling. The two cancelled projects in New England total 2,000 MW and the threatened New York wind projects total 11,700 MW. Any projects delayed mean RGGI-affected source emissions will not be displaced as originally expected. If the allowance trajectory proposed does not account for this new information, then compliance will be threatened because affected sources have so few options available to reduce emissions. I recommended that a RGGI IPM modeling scenario be run to consider the effect of a delayed implementation schedule before finalizing Third Program Review recommendations. In fact, given the importance of renewable development on the emission trajectories it might even be appropriate to delay the timing of completion of this program review.

There is another consideration regarding feasibility. As noted above, the accumulated annual emission reductions due to RGGI investments is 3,893,925 tons and RGGI investments over the same time frame total $3,608,950,013 so the cost per ton avoided is $927. If the only source of future emission reductions were the result of RGGI investments, then RGGI allowance prices would have to equal $927 to get the necessary reductions. Of course, other investments will also reduce emissions but the RGGI States should consider cost considerations for the viability of renewable energy resources needed to get RGGI affected source emissions to zero. None of these models address this uncertainty.

The final observation noted at the September 26 webinar was that “Scenarios modeled to date show relatively low allowance prices compared to the ECR/CCR price triggers in the Model Rule”.  Low allowance prices indicate that emissions are lower than the allowances auctioned so there is a surplus of allowances.  My description of RGGI results to date noted that RGGI-affected sources have limited options to switch from coal and residual oil to natural gas.  I expect that as the opportunities to switch fuels diminish that the allowance market will get tighter and allowance prices will go up.  This could trigger the RGGI cost containment reserve.   If allowance prices exceed predefined price levels,  this RGGI feature will release additional allowances to the market.  If the allowance trajectory is too aggressive and emissions do not decrease as expected because wind and solar do not come on line as planned or there is an abnormal weather year increasing load and decreasing wind and solar availability, then there could be a situation where there simply are not enough allowances available for compliance.  The Cost Containment Reserve could prevent this from occurring.  However, no scenarios with this feature have been modeled yet.  I recommended that the RGGI States should model a scenario where the renewable implementation is delayed and the Cost Containment Reserve is employed.

Conclusion

I am afraid that the RGGI States are placing so much reliance on the IPM analysis results that they could propose unrealistic allowance reduction trajectories.  It is naïve to treat any model projections of the future energy system without a good deal of skepticism because the electric grid is so complex and currently dependent upon dispatchable resources.  Replacement of RGGI-affected sources with intermittent and diffuse wind and solar resources that cannot be dispatched is an enormous challenge with likely unintended consequences.  Therefore, the results should be considered relative to historical observations. 

I don’t see much indication that the RGGI States are considering the results of RGGI to date.  I am leery of any model projections of this future system but I have much greater faith in projections by the NYISO because they are responsible for electric system reliability.  I think there are significant differences between the NYISO projections and IPM.  Until those differences are reconciled, I will be skeptical.  Kevin Kilty summed up a rational approach to the use of model results that I fear the RGGI States will ignore: “Beware.  Expect Surprises. Expensive Ones”.