RGGI Studies Find Economic Benefits for Participants, Little Impact to Pa. Energy Prices
An array of solar panels in Hurlock, MD, photographed on May 3
An array of solar panels in Hurlock, MD, photographed on May 3 | © RTO Insider LLC
Two recent reports found that participation in RGGI produces economic benefits and that Pennsylvania would see a small change in power prices should it join.

Two recently published reports on the Regional Greenhouse Gas Initiative (RGGI) found that participation in its cap-and-invest auctions produce net economic benefits and that Pennsylvania would see a small change in power prices should it join.

A May 16 report from the Analysis Group found that between 2018 and 2020 auction proceeds generated $669 million in net economic value and nearly 8,000 job-years for the 10 participating states.

“Although the original focus of the RGGI program was to address carbon emissions, we have consistently found that the cap-and-invest program results in a net positive economic impact for participating states,” Paul Hibbard, report co-author, said in an announcement of the report. “Our analysis shows that the regional cap works to limit carbon pollution, and the investment of auction proceeds plus the program’s impacts on the power sector result in overall reductions in electricity usage, additional income for consumers and business owners, and new jobs.”

The Analysis Group report is the fourth in a series of studies evaluating the economic impact of each three-year compliance period for the RGGI auctions. Together they find in its 12-year history, RGGI has yielded $3.8 billion in auction proceeds, which states spent on programs creating $5.7 billion in net economic benefits and 48,000 job-years. The program has also contributed to a 46% reduction in carbon emissions from power generation from 2006 to 2020.

States have used the proceeds from CO2 allowance auctions to fund energy efficiency programs, renewable energy development, education and job training, measures to reduce greenhouse gas emissions and ratepayer relief.

“[Energy efficiency] and [renewable energy] programs reduce net electricity consumption for program participants and lower wholesale electricity prices for everyone in the RGGI region by lowering regional electricity demand,” the report states. “Overall, despite an initial increase in wholesale electricity prices during the compliance period, consumers enjoy net economic gains through the combination of direct program spending and savings associated with EE and RE spending.”

Though it was not the focus of the Analysis Group report, Hibbard said researchers observed that New Jersey has seen economic outcomes in line with it dropping out of RGGI in 2011 and its re-entry in 2020.

“Over the four reports we’ve done, New Jersey has at times been part of it, and when they were participating in RGGI they were achieving significant economic benefits, because New Jersey was taking their money, using it in certain ways, generating jobs within New Jersey and generating an increase in gross state product within New Jersey,” he said. (See NJ To Accelerate RGGI Fund Expenditures.)

Connecticut Department of Energy and Environmental Protection Commissioner Katie Dykes, who is also chair of RGGI Inc., said the report underlines that the benefits of RGGI go beyond its environmental goals.

“Throughout its history, RGGI has delivered numerous benefits to Connecticut and the other participating states, including lower energy bills for our residents and businesses, new jobs in our growing clean energy industries, and reductions in climate-damaging, health-harming pollution,” she said in the report’s announcement.

In addition to its economic analysis, the report looked at what states are doing to address potential disparate outcomes for overburdened communities, a discussion that members are undertaking as part of RGGI’s third program review. One proposal under discussion is a “hybrid methodological approach” to evaluate programs’ impacts on those communities. Also under consideration are using RGGI auction funds to conduct air monitoring, providing opportunities and resources for active community participation, spending requirements and tracking both environmental and health outcomes.

“In my view it’s almost certain the public health impact of RGGI is to reduce environmental risks even in overburdened communities,” Hibbard told NetZero Insider. “The reason it’s an issue in the context of RGGI is because some people have pointed out that you can have the program reduce emissions from power plants overall, but the financial signals of a cap-and-trade program might allow an individual power plant to actually operate more. There are some arcane circumstances [in which] that could be the case.”

Devashree Saha, senior associate at World Resources Institute and a member of RGGI’s technical advisory group, said that the report showed avenues for participating states to ensure that the environmental benefits of reducing emissions are spread equally for all residents.

“Even though the electricity sector has made significant progress in reducing emissions in the aggregate, existing policies and the RGGI framework do not fully address the fundamental problem of unequal pollution burden among communities,” she said in the announcement.

Study Finds RGGI Participation Presents Little Impact to Energy Prices

A second study, released May 9 by Resources for the Future and the Kleinman Center for Energy Policy at the University of Pennsylvania, found that joining RGGI in 2023 would have minimal impact on energy prices for Pennsylvania ratepayers. That is, in part, due to an expectation that allowance prices in the 2030 auction would fall from $8.59 to the floor price of $2.26 due to the widespread low-cost abatement opportunities in the state. A 2019 Executive Order issued by former Gov. Tom Wolf would make the state the 12th to join RGGI, however the order’s implementation has been prevented by ongoing lawsuits in state courts. (See Court Blocks Pa. from Joining RGGI.)

If the state were to begin participating in auctions this year, the study finds that 2030 emissions would be cut by 84% relative to 2020 levels, compared to a 49% to 52% decline if the state were not to join. That would amount to a 25-million-ton reduction in emissions to 28 million tons in 2030. The report bases its findings on the state’s proposal that its emissions cap be based on its 2020 emissions of 83 million short tons and decline by 3% annually, which follows the trajectory of the emissions cap in RGGI. An alternative scenario with a stricter cap of reaching zero emissions by 2040 finds similar reductions by 2030.

Retail electricity prices are estimated to increase by about 1% in 2030 under the 3% declining cap scenario and decrease by 0.6% under the scenario with a zero emissions cap in 2040.

“Initially, one might anticipate that introducing a carbon price in the electricity sector would raise the wholesale price (and thus retail price) by the allowance price times the emissions rate of the marginal generator. However, a Pennsylvania generator may not be the marginal generator in PJM,” the report says. “Furthermore, the price may be lower because even in the first year after a carbon price is introduced, there may be an opportunity to change the dispatch order of generation resources, including hydro or battery storage, such that the marginal plant changes to a lower-emissions plant, or for the marginal plant in the regional market to become a plant outside the state.”

While the report focuses on the impact to wholesale electricity prices, it notes that the auction revenues could be invested to the state’s economic benefit, particularly since much of that revenue would be coming from generators located in other states.

“Despite low allowance prices, the state still gains $101 million to $148 million from the auction of emissions allowances in 2030. A large portion of this revenue (71%) comes from the purchase of allowances by generators in other RGGI states,” the report said. “The net effect for Pennsylvania consumers, combining auction proceeds and the change in electricity prices, is slightly negative under the 3% cap and beneficial under the tighter cap. Pennsylvania may decide to direct some or all of this revenue to program-related purposes that could directly reduce electricity bills or accelerate decarbonization.

Most of the reductions are expected to come from emissions reductions from coal generation, which report co-author Angela Pachon, research director at the Kleinman Center, said also accounts for the expected drop in allowance prices in the RGGI auction. Since Pennsylvania has a relatively large share of coal generation relative to other RGGI states, she said there are many more opportunities for abatement. The report was cowritten by Maya Domeshek, research associate at RFF, and Dallas Burtraw, senior fellow at RFF.

The study also finds that current allowance prices are not likely to be representative of the future of RGGI with Pennsylvania’s participation because of volatility in natural gas prices owing to current global instability and risk averse behavior observed in the markets in the past when the state was expected to join.

“New entities enter the program with no market experience or allowance bank. Consequently, every previous emissions market (including markets for sulfur dioxide and nitrogen oxides) has seen initially high levels of demand and temporarily high prices as firms acquire allowances to build up a bank (Burtraw and Keyes 2018). This market behavior is typically followed by a return to expected prices over the longer term as the generation mix has time to adjust,” the report states.

Unlike past studies examining the impact of the state participating in the RGGI auctions, which found that joining would likely lead to increased retirements of fossil fuel generation, the RFF report found that it would likely lead to increased renewable development in the state, in large part because of incentives under the Inflation Reduction Act.

Daniel Stuart, co-author of the Analysis Group report, said the RFF study dovetails with his findings by showing that the impact to energy prices is likely to be outweighed by the benefits derived from programs funded by the auction revenue.

“I did have a chance to review the RFF report. It seemed to be very carefully done, and really the findings are very consistent and complement our study in the sense that they find perhaps positive, perhaps negative, but overall very small impacts on wholesale electricity prices,” he said. “And then what our report demonstrates is that once you raise allowance auction revenue and spend it and reinvest it in local communities, you’re going to experience an economic impact.”

PennsylvaniaState and Local PolicyUncategorized

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