As Climate Warnings Continue, Models Show RGGI Can Do More

This post was co-authored with my colleague Bruce Ho.

Scientists in Australia this week reported that a small rodent, the Bramble Cay melomys, may be the first mammal species to have gone extinct due to human-caused climate change.

Meanwhile, half a world away, the nine Northeastern and Mid-Atlantic states that make up the climate-pollution-cutting Regional Greenhouse Gas Initiative (RGGI)—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont—are debating how fast to cut carbon pollution in our region. Here’s the answer: We can’t afford to delay. After all, Australia’s Bramble Cay melomys isn’t the only mammal at risk from climate change.

Tomorrow, these states will host a webinar to discuss results of recent modeling on the potential for the RGGI region to further reduce its carbon pollution between 2020 and 2030. Let us offer a spoiler alert: The RGGI states can make substantial additional cuts in power-plant carbon pollution at very low cost, all while adding tens of thousands of new jobs and saving consumers tens of billions of dollars on their energy bills.

Current successes need to be expanded upon.

First, a little background: RGGI is the United States’ first cap-and-trade program designed to cut carbon pollution in the power sector. Since 2009, it has helped participating states cut power plant carbon pollution by more than 37 percent, while generating benefits that include:

• More than $2.9 billion in value added to the regional economy;
• Consumer energy bill savings to date of at least $395 million;
• More than 30,000 new job-years of work (a job-year is one year of full-time employment); and
• $10 billion in public health benefits.

By nearly every measure, RGGI is an environmental and economic success. As now designed, RGGI will continue to cut power plant carbon pollution through 2020, so the program’s benefits will also continue to grow.

But, to avoid climate change’s worst impacts, we will need to keep cutting carbon pollution beyond 2020. The RGGI states recognize this, and have each committed to achieve significant cuts in their economy-wide greenhouse gas emissions in the years ahead, with most states targeting emissions reductions of around 40 percent by 2030 and at least 80 percent by 2050. These commitments are important, but they won’t be realized in a least-cost, most beneficial manner without continued cuts under RGGI.

To evaluate the feasibility of such cuts, the RGGI states modeled potential cap-reduction trajectories. Here are some of the key results, along with some key questions the modeling has yet to answer:

1. RGGI states can achieve substantial additional cuts in power-plant carbon pollution.

The modeling considered a range of potential carbon-pollution cuts between 2020 and 2030, including emission reductions of 2.5 percent per year and a more ambitious cut of 5 percent annually. NRDC and other groups previously urged the states to consider a 5-percent-per-year reduction scenario, which is consistent with the rate of emission reductions RGGI has achieved to date as well as the reductions the states need to achieve their 2030 economy-wide climate targets. So it’s encouraging to see this scenario included in the modeling.

Moreover, all of the scenarios modeled look readily achievable economically. Even under the most ambitious cap trajectory considered–the 5-percent-per-year reduction–the modeling shows only a modest impact on power prices, of less than a penny per kilowatt-hour. Because these impacts on prices can be mitigated by investments in energy efficiency and other clean energy programs in ways that actually result in energy bill savings for consumers, as they already have under RGGI thus far, there’s every reason to believe that after 2020, RGGI can continue to cut carbon pollution while bringing economic benefits to the region. In fact, according to an analysis by the consulting group Synapse Energy Economics, a RGGI cap reduction of 5 percent per year, together with other complementary programs, is consistent with a least-cost pathway to achieving the states’ targets to reduce economy-wide greenhouse gas emissions by 40 percent by 2030 and could generate 58,400 jobs annually, all while saving consumers $25.7 billion on their energy bills.

2. The states should consider adopting a RGGI cap reduction of 5 percent per year through 2030.

The RGGI states have made good progress in reducing greenhouse gas emissions. But they still have a long way to go to achieve their 2030 and 2050 climate targets. As Synapse’s study shows, a continued 5-percent-per-year reduction in power-sector carbon pollution through 2030 would put the RGGI states on a solid trajectory to achieve their 2030 targets and set them up well for their 2050 targets as well. If these emission reductions aren’t achieved from the power sector, they will need to come from elsewhere, potentially at a much higher cost.

3. While the states’ modeling is broadly encouraging, it reinforces concerns about program flaws that could quash RGGI’s environmental benefits.

While the overall modeling results are promising, there are still decisions the RGGI states could make that would torpedo the effectiveness of the program. The first is about RGGI’s Cost Containment Reserve (CCR), an additional cache of allowances that can enter the market when the allowance price reaches a certain level. The CCR was designed to avoid price spikes in allowance costs. But as the new modeling shows, it’s not necessary. There is already a substantial excess of “banked” carbon allowances in the market, something that could undermine RGGI’s environmental goals by allowing emissions to remain higher than the cap. These excess allowances have been created in part by the CCR itself, which released 15 million tons of extra allowances in recent years, and could release tens of millions more over the next few years, even though the number of allowances in the market has remained well above what is needed for compliance. Power generators and electric utilities have also contributed to the excess, but in a positive way: Because they’ve been able to reduce carbon pollution faster and at lower cost than expected, they haven’t had to use as many pollution allowances as the RGGI states created.

The states have considered some CCR reforms in one modeled scenario, including raising the CCR “trigger” price so that it better addresses truly unanticipated price spikes (as opposed to the current CCR trigger which closely tracks anticipated allowance prices thereby driving perverse market behavior). Raising the trigger price is a good idea, but the CCR mechanism considered in the modeling would still continue to release carbon allowances above the overall cap, thus increasing total allowable pollution in the region and exacerbating the problem of “hot air” in the regional carbon market. Moving forward, if the CCR is retained, the states should modify it so that the allowances come from underneath RGGI’s overall emissions cap to preserve the program’s environmental benefits.

As we have also previously commented, just as the states did in 2012 when they adjusted RGGI’s cap downward to account for existing, excess banked allowances, the RGGI states should adjust the post-2020 regional cap to get rid of the existing allowance hot air in the system and keep the region on track to meeting the states’ 2030 climate commitments.

4. The RGGI states must avoid emissions “leakage” if they decide to allow carbon trading with states outside of the region.

While not directly considered in the modeling released thus far, the RGGI states are also exploring whether to link RGGI’s carbon trading market with other carbon markets that may develop outside of the region as a result of EPA’s Clean Power Plan. If implemented properly, a broader trading market could provide market benefits, including lower compliance costs, but trading could also undermine RGGI’s success in cutting carbon without the appropriate safeguards. As we’ve previously commented, RGGI should only link markets with states that cap carbon emissions from both existing and new power plants, as RGGI already does. Otherwise, trading could undermine RGGI’s carbon emission goals by simply shifting electricity generation and associated carbon pollution from existing fossil-fired power plants in the RGGI region to new, unregulated fossil-fired power plants in other states.

The modeling the RGGI states have just released shows the incredible opportunities ambitious carbon cuts from the region’s power sector offer us. Achieving them can help states meet their scientifically mandated climate targets—the ones we need to meet to avoid climate change’s worst impacts and, most importantly, to keep our promises to our children. Achieving them can also create tens of thousands of new jobs and generate consumer savings worth tens of billions of dollars.

Climate change has claimed one species already. But we don’t have to lie down and play dead. By promoting ambitious, well-designed, and innovative carbon-cutting programs, RGGI can help another species—us—to thrive.