1 Regonal Greenhouse Gas Intatve A Successful Carbon Prcng Program Overvew September 2014 The Regonal Greenhouse Gas Intatve (RGGI) s the frst mandatory greenhouse gas (GHG) emssons cap-and-trade system n North Amerca. The program has been n place snce 2009 and regulates fossl fuelpowered electrc generatng plants n nne Northeast and md-atlantc states. 1 The RGGI regon had a combned Gross Domestc Product (GDP) of approxmately $2.6 trllon n 2012 four tmes that of Ontaro and almost 50% more than the entre Canadan economy n the same year. RGGI s a market-based approach that requres fossl fuel-fred electrc power generators wth a capacty of 25 MW or greater to purchase polluton permts (called allowances ) from a supply that declnes over tme. At the end of each three-year complance perod regulated enttes must have allowances equvalent to each ton of carbon doxde (CO 2 ) emtted. Allowances are auctoned nstead of provded to polluters for free, and revenue collected s re-nvested n programs that beneft consumers. Power generators that reduce emssons purchase fewer allowances, thus reducng allowance prces and consumer costs. After fve plus years of successful operaton, RGGI has demonstrated the vablty of a carbon prcng program to reduce CO 2 emssons and other dangerous pollutants whle generatng economc benefts and broad support n the partcpatng jursdctons. 1 Partcpatng RGGI states nclude: Connectcut, Delaware, Mane, Maryland, Massachusetts, New Hampshre, New York, Rhode Island, and Vermont. New Jersey stopped partcpatng n RGGI after 2011, but the wthdrawal has been overturned n court and New Jersey may rejon the program. Ontaro, Québec, New Brunswck, and Pennsylvana are observers to the RGGI program.
2 2 Regonal Greenhouse Gas Intatve: A Successful Carbon Prcng Program Key Results & Trends 1. Sgnfcant Emssons Reductons CO 2 emssons n the RGGI regon were capped at 2009 levels from and then set to declne by 2.5% per year to 10% below 2009 levels by Fuel swtchng, mproved energy effcency and growng renewable energy output have caused emssons to drop by 18% snce RGGI was launched, demonstratng that emssons can be reduced faster than orgnally assumed. The RGGI program was revewed n 2012 and the cap has been reset as of 2014 from 165 mllon tons to 91 mllon tons to reflect actual emssons levels, but already emssons n 2013 were 4.9% lower than the new, more strngent cap (see Fgure 1 on pg. 5). 2. Decouplng of Emssons & Economc Growth As the regonal economy has become less energyntensve and effcency nvestment have ncreased, the relatonshp between economc growth and emssons has been broken. Emssons n RGGI states have declned faster than n other states, even as economc growth n the regon has outpaced growth n non-rggi states. In fact, emssons n the regon dropped 2.7 tmes faster than the rest of the country snce RGGI was establshed, even as RGGI states economes have grown 2.5 tmes faster than other states. v 3. Declnng Electrcty Prces Contrary to expectatons, electrcty prces have declned snce RGGI took effect. Comparng average retal electrcty prces from 2008 (before RGGI s launch) to 2013 shows that prces dropped by 2% to 14% n states other than Vermont, 2 and prces have dropped by 8% on average across the regon. v Durng the same perod electrcty prces n non-rggi states ncreased by 6%. v 4. Spurrng Economc Growth RGGI has generated sgnfcant economc benefts for partcpatng states. By sellng allowances, RGGI states rase revenue that s renvested n energy effcency, renewable energy, and other consumer beneft programs. The majorty of program revenue (65% though 2012 v ) has been nvested n energy effcency programs that reduce demand for energy, generate drect benefts for partcpatng consumers, and reduce the overall cost of the cap-and-trade program. Dependng on the state, the clean energy programs take the form of grants to low-ncome and other consumers, busnesses, and communtes; revolvng loan funds; nvestment n research and development; etc. RGGI has also generated economy-wde benefts by creatng local clean energy jobs, reducng expendtures on mported fossl fuels, boostng consumer spendng on goods and servces, and mprovng the compettveness of ndustry through effcency mprovements. As of July 2014, the states have rased $1.75 bllon n revenue, whch has been renvested n energy effcency and other programs that wll add over $2.4 bllon n net value and generate 23,000 job-years of employment over 10 years. v The recent strengthenng of RGGI s cap s projected to brng states an addtonal $4 bllon n revenue, $8.7 bllon n economc growth, and 132,000 job years of employment. x 5. Improvng Publc Health The declne n CO 2 emssons from power plants n the RGGI regon has been accompaned by an even more sgnfcant declne n hazardous pollutants that threaten publc health. Emssons of sulfur doxde (SO 2 ), ntrogen oxde (NO x ), and mercury (Hg) are all down sgnfcantly, and wll drop even more under the new RGGI cap. In monetary terms, the reducton n hazardous emssons from 2009 to 2013 translates nto $10.4 bllon n health care savngs for SO 2 alone, and further reductons n hazardous emssons under the new RGGI cap wll lead to an addtonal $1.6 bllon n health-related savngs through x 2 VT buys more of ts power through long-term contracts than other states n the regon, whch has stablzed prces, but means that VT s nsulated from wholesale prce trends, whch have recently decreased power prces n the regon.
3 ENE September Industry & Communty Benefcares By establshng a prce on carbon and collectng revenue from polluters through quarterly regonal CO 2 allowance auctons admnstered by RGGI, Inc. and montored by a thrd party, states have been able to renvest n households, local ndustry, and communtes, whch s one of the key reasons the program contnues to enjoy broad support. 3 The followng examples profle only a few of the many companes and nsttutons that have drectly benefted from the RGGI program. New England Clean Energy Councl (NECEC) NECEC s a regonal non-proft organzaton representng clean energy companes and entrepreneurs throughout New England and the Northeast U.S. through programs and ntatves that help clean energy busnesses at all stages of development to access the resources they need to grow. The NECEC s the lead voce for hundreds of clean energy companes across New England, nfluencng the energy polcy agenda and growng the clean energy economy. The NECEC Insttute leads programs across the Northeast that support Innovaton and Entrepreneurshp, Cluster and Economc Development, and Workforce Development. NECEC's combned msson s to accelerate the regon's clean energy economy to global leadershp by buldng an actve communty of stakeholders and a world-class cluster of clean energy companes. In Massachusetts alone there were approxmately 5,550 clean energy frms and 80,000 clean energy workers n The employment growth rate n the clean energy ndustry from 2012 to 2013 was 11.8%. The NECEC has consstently supported the RGGI program; seeng t as a means of establshng regulatory certanty and key tool for advancng the clean energy economy n the regon. Programs lke RGGI present strong evdence that aggressve actons on clmate and clean energy can result n sgnfcant economc growth, job creaton, cleaner energy deployed n the regon, and an mproved envronment. ~Peter Rothsten, NECEC Presdent 3 For example, durng the 2012 Program Revew approxmately 250 busnesses and communty groups sgned a jont letter encouragng states to support and strengthenng the RGGI program (www.rgg.org/docs/programrevew/sc122011_jont-busness-program-reform. pdf). Durng the same process electrc companes and envronmental NGOs came together to support RGGI and provde jont comments on how to constructvely move the Program Revew forward (http://www.rgg.org/docs/jont_modelng_comments.pdf).
4 4 Regonal Greenhouse Gas Intatve: A Successful Carbon Prcng Program Madson Paper Industres Madson Paper s a papermakng company that employs 220 people n Mane. The company receved two RGGI-funded grants from Effcency Mane Trust's Large Project Fund totallng over $1 mllon, whch allowed t to complete two major energy savngs projects. The frst project a whte water heat recovery system reduces the steam requred n ts papermakng process, savng approxmately 538,800 gallons of No. 6 fuel ol and $911,100 per year. The second project new pressurzed grndng stones reduces the energy needed n the wood grndng process, savng 18.5 mllon kwh and $1.4 mllon per year. To complete these energy savngs upgrades Madson Paper hred numerous local contractors, and wth the over $2 mllon n projected annual savngs the company has retaned full-tme jobs at the mll and wll contnue to support other jobs and economc growth n the state. Ibd. Wth the assstance from RGGI-funded grants we have been able to pursue these energy-savngs projects n the current dffcult busness clmate. ~Joe Clark, Relablty Engneer Massachusetts Green Communtes Program The Massachusetts Department of Energy Resources' Green Communtes Dvson helps muncpaltes maxmze energy effcency n publc buldngs and generate clean energy from renewable sources. Snce 2010, t has awarded more than $33 mllon to ctes and towns from the sale of RGGI allowances. These grants support projects n schools, muncpal buldngs, and muncpal lght plants, and nclude LED lghtng upgrades, town hall and fre staton weatherzaton, and nstallaton of more effcent bolers. These projects and grants to fund energy managers n desgnated Green Communtes and other muncpaltes are reducng energy blls and greenhouse gas emssons. Green Communtes grants help Massachusetts ctes and towns nvest n projects that cut muncpal energy use. Supportng local clean energy projects that move us toward energy ndependence whle lockng n long-term savngs for local taxpayers and reducng greenhouse gas emssons s a great use of RGGI aucton proceeds. ~DOER Actng Commssoner Lusard See html; and green-communtes/grant-program/map-summarygreen-communtes.pdf
5 ENE September Foss Manufacturng Company The Foss Manufacturng Company of Hampton, New Hampshre receved $750,000 n RGGI revenue from the NH Busness Fnance Authorty's (BFA) Busness Energy Conservaton Revolvng Loan Fund (RLF). Manufacturng of non-woven fabrcs s powered by on-ste generaton, makng the company nelgble for utlty energy effcency ncentves. The loan helped fnance upgrades to motors, lghtng, and other measures that are projected to save $750,000 annually, allowng for quck repayment to the BFA--whch wll repurpose funds to assst other companes--and ongong savngs for Foss, whch has hred 200 workers snce closng the loan. New Hampshre's RLF (approxmately $5 mllon lent to date ) s funded exclusvely through RGGI allowance aucton proceeds. In addton to Foss Manufacturng, the program has supported: Canam Steel Corporaton, Shelburne Plastcs, Warwck Mlls, Vtex (an alumnum extruder), Ragged Mountan Resort, Smuttynose Brewng, and the Androscoggn Valley Hosptal. GHGERF/2010GrantAwards/BFA%202013%20Q1%20Report.pdf In just two months, we saw a $40,000 reducton n our energy bll, and we expect the nvestment to save an average of $750,000 over three years. The savngs have gven us the opportunty to nvest n our employees and grow our company. ~AJ Nassar, CEO of Foss Manufacturng Mane Wld Blueberry Company The Mane Wld Blueberry Company was the recpent of a $300,000 grant from Effcency Mane's Large Project Fund, whch was funded exclusvely usng RGGI allowance proceeds. A sgnfcant amount of energy s used n the company's faclty to freeze, store, and defrost the blueberres. The grant was used to partally fund a $900,000 project to upgrade the refrgeraton equpment from multple Freon-based unts to a sngle ammona system. The Mane Wld Blueberres Company's electrcty blls pror to recevng the RGGI-funded grant were approxmately $268,000 per year. Effcency Mane estmates that the company wll pay approxmately $97,000 per year as a result of energy Whle our new equpment generates good energy savngs, Effcency Mane s ncentve was a make-or-break factor n our payback calculaton, and our decson to make ths new nvestment n Washngton County. ~Joe Comeau, Engneer effcency upgrades. Ths translates nto annual savngs of $171,000 and a project payback perod of 3.5 years. Blueberry-Company.pdf bd.
6 6 Regonal Greenhouse Gas Intatve: A Successful Carbon Prcng Program Solar Lberty Solar Lberty of New York state was founded n 2003 and was recognzed by Inc. magazne as one of the fastest growng prvate companes n 2008 (92 n the country and 5th among energy companes). It s currently one of the largest solar nstallers n N.Y. In 2010, Solar Lberty nstalled 126 solar photovoltac (PV) panels on the gymnasum roof of the Cayuga Communty College n Auburn, N.Y. The system s expected to generate 26,844 kwh of electrcty per year and reduce CO2 emssons by 280 tons over 25 years. Annual electrc bll savngs are approxmately $3,600. RGGI proceeds were used to fund half of the total program costs. Carbon prcng and the proceeds from the sale of RGGI allowances are drvng demand for clean energy projects lke the nstallaton at Cayuga Communty College, whch n turn supports the clean tech sector and local companes lke Solar Lberty. As of March 2014, $45.5 mllon (of the $625 mllon collected n NY) n RGGI funds have been used to nstall 128 solar PV systems under NYSERDA's solar PV programs, and 1,588 solar PV systems under the Long Island Power Authorty's Solar Poneer and Solar Entrepreneur programs. These systems are expected to generate over 16,000 MWh per year, and help companes lke Solar Lberty expand the clean energy sector n New York. RGGI funds, as part of the NYSERDA/ NY-Sun program, have been pvotal n movng the PV sector forward n New York State. New York s a leadng state for solar jobs, and s only mprovng. Solar Lberty s proud to have played a major role n ths growth wth over 1,000 nstallatons across New York State and contnued job growth for over 10 years. ~Adam Rzzo, Presdent New York s RGGI-Funded Programs Status Report, Quarter Endng March 31, 2014; ny.gov/energy-and-the-envronment/regonal-greenhouse-gas-intatve/evaluatons-of-funds.aspx
7 ENE September Gong Forward 1. RGGI Program Revew The RGGI Memorandum of Understandng requres the states to conduct a jont revew of the RGGI program on a perodc bass. The 2012 Program Revew resulted n sgnfcant updates, most mportantly a reducton n the regonal emssons cap to reflect the sgnfcant and structural declne n emssons snce the ntal cap was establshed. At the concluson of the Program Revew states agreed to reduce the regonal emssons cap from 165 mllon tons to 91 mllon tons, ensurng that the program wll contnue to drve reducton n carbon polluton (see Fgure 1). The next Program Revew wll occur n The requrement to revew performance and ablty to make adjustment based on the most up-to-date nformaton has proven to be a key program desgn element. The RGGI cap reducton and other changes took effect n Fgure 1: Actual Regonal CO 2 Emssons Compared to the Intal and Adjusted RGGI Cap Mllon Short Tons CO Actual RGGI Emssons Intal RGGI Cap (165m Tons) New Cap (91m Tons) Projected Emssons Sources: RGGI, Inc and EPA Actual 2013 emssons of 86.5m tons fell 4.9% below the new cap, and 7.2% below projectons. 2. EPA Regulatons On June 2nd, 2014the US Envronmental Protecton Agency (EPA) released draft regulatons that wll requre all ffty states to mplement GHG reducton programs for exstng power plants by the end of the decade. Legal experts beleve that the nherent flexblty under 111(d) of the Clean Ar Act (under whch EPA would regulate) and EPA s hstorc deference to effectve state-proposed solutons wll allow RGGI to serve as a means of complyng wth federal requrements. x Modest revsons to RGGI may be requred to make RGGI s targets match EPA requrements, but no fundamental changes wll be requred Lnkng Programs As states develop plans to comply wth new EPA carbon regulatons, cap and trade presents an attractve model that s flexble, admnstratvely-straghtforward, and capable of reducng emssons at lowest cost. Other states could buld on RGGI s successful model by establshng ther own state or regonal markets or jon the RGGI program, whch some states are already consderng. Provnces may also look to RGGI to expand ther carbon markets. Ontaro, Québec, and New Brunswck are offcal observers to the RGGI program, and recently Québec has sgnaled an nterest n sharng nformaton and potentally lnkng ts cap-and-trade program wth RGGI. Whle RGGI s currently an electrc sector-only program, ths should not be a barrer to lnkng wth jursdctons that mplement economy-wde cap-and-trade programs. 4 ENE beleves that modest revsons to RGGI s structure may be requred n order for EPA to determne that the program wll delver ntended emssons reductons n the near and long term. Specfcally, RGGI s cap wll have to be extended from 2020 to 2030, and the allowance reserve and cap declne mechansms may requre revsons. The legal vablty of offsets s not yet clear. For more nformaton see:
8 8 Endnotes Regonal Greenhouse Gas Intatve: A Successful Carbon Prcng Program See GDP by state: GDP for Canada and Ontaro: exchange rate of (IRS 2012 avg.) For addtonal nformaton on the RGGI program and the key trends and results to date see ENE s The Regonal Greenhouse Gas Intatve: Performance To-Date and the Path Ahead, avalable at: ENE analyss of emssons data from RGGI, Inc. at: https://rgg-coats.org/eats/rgg/ndex.cfm?fuseacton=search.rgg_summary_report_nput&clearfuseattrbs=true v From 2008 (the year before RGGI took effect) to 2013, RGGI emssons dropped 32% and emssons n the electrc sector n other states dropped by 12%. Over the same perod RGGI states economes grew by 4.8% compared to 1.9% n other states, based on economc ndcators from the Federal Reserve Bank of Phladelpha (http://www.phladelphafed.org/research-and-data/regonaleconomy/ndexes/concdent/) weghted by gross state product (http://www.bea.gov/newsreleases/regonal/gdp_state/2013/xls/ gsp0613.xls). v Energy Informaton Admnstraton (EIA) 826 Dataset, v Ibd. v RGGI, Inc., 2014, Regonal Investment of RGGI CO2 Allowance Proceeds, 2012, avalable at: Documents/2012-Investment-Report.pdf v Calculaton of economc benefts draws on economc multplers from the IMPLAN model, nferred from the 2011 Analyss Group report The Economc Impacts of the Regonal Greenhouse Gas Intatve on Ten Northeast and Md-Atlantc States (www.analyssgroup.com/rggi.aspx) and assumes spendng of aucton revenue accordng to exstng state plans (catalogued n ENE Aucton Tracker, at: x Economc modelng of new RGGI cap by REMI, Inc., avalable at: Bank%20MR_2013_06_03.pdf x The monetzed health benefts of avoded SO 2 emssons were approxmated usng EPA s sector-based beneft per ton estmates of PM2.5 precursors. SO 2 emssons reductons data to-date ( ) are from EPA s Clean Ar Markets Dvson (http://www.epa.gov/armarket/emssons/). Projected emssons reductons ( ) are from IPM Electrcty Sector Modelng Results prepared by ICF Internatonal for RGGI, Inc. (http://rgg.org/docs/programrevew/february11/results_91_cap_ Alt_Bank_MR.xls). Emssons data covers RGGI regulated unts for the nne states currently n RGGI. Approxmate monetzed health benefts were calculated by multplyng the to-date and projected emssons reductons by sector-based PM2.5-related beneft per ton (BPT) estmates. The EPA provdes several reduced-form tools for calculatng PM2.5-related health benefts, ncludng updated versons of the BPT tables (http://www.epa.gov/arqualty/benmap/sabpt.html) publshed n Characterzng the PM2.5- related health benefts of emsson reductons for 17 ndustral, area and moble emsson sectors across the U.S. (Fann, Baker and Fulcher, 2012) (http://www.scencedrect.com/scence/artcle/p/s ). The methodology s detaled n the Techncal Support Document, Estmatng the Beneft per Ton of Reducng PM2.5 Precursors from 17 Sectors (http://www.epa.gov/ arqualty/benmap/models/source_apportonment_bpt_tsd_1_31_13.pdf). Fann, Baker and Fulcher (2012) assess the ncdence of PM2.5-related deaths and llnesses, ncludng non-fatal heart attacks, hosptal admssons, emergency department vsts, respratory symptoms, cases of acute bronchts, cases of aggravated asthma, and lost work days. For ths analyss, we used the 2016 BPT estmates for SO 2 for Electrcty Generatng Unts. These values are natonal estmates n 2010 dollars, whch were adjusted to 2013 dollars. The sector-based BPT estmates are based on the Krewsk et al. (2009) PM2.5 mortalty rsk estmate and reflect a 3% dscount rate. The 2016 estmates use emssons, populaton and ncome growth projectons for 2016, and use baselne mortalty ncdence rate projectons for 2015 (best avalable data). The resultng health benefts offer a smplfed quantfcaton of the avoded health mpacts of SO 2 emssons, but should not be nterpreted as a substtute for more detaled, comprehensve analyses of the per-ton benefts of reducng SO 2 emssons n the RGGI regon. For more on the lmtatons of ths smplfed approach, see Economc value of U.S. fossl fuel electrcty health mpacts (Machol and Rzk, 2013) (http:// x Secton 111(d) of the Clean Ar Act allows suffcent flexblty for states to utlze programs lke RGGI (see Ltz et. al. What s Ahead for Power Plants and Industry? Usng the Clean Ar Act to Reduce Greenhouse Gas Emssons, Buldng on Exstng Regonal Programs, avalable at: and Wanner et. al. Prevalng Academc Vew on Complance Flexblty under 111 of the Clean Ar Act, avalable at: Summer Street, PO Box 583 Rockport, ME (207) Boston, MA / Provdence, RI / Hartford, CT / Ottawa, ON, Canada / / Danel L. Sosland, Presdent ENE s a nonproft organzaton that researches and advocates nnovatve polces that tackle our envronmental challenges whle promotng sustanable economc development. ENE s at the forefront of state and regonal efforts to combat global warmng wth solutons that promote clean energy, clean ar and healthy forests.