Northeast & Mid-Atlantic Climate Leadership Starts with RGGI

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

President Trump has recklessly pledged to pull the United States out of the Paris climate agreement. But his shortsighted decision can’t and won’t stop leading states, cities, businesses, and individuals from making progress on climate change. Tomorrow, the nine states in the Regional Greenhouse Gas Initiative (RGGI) carbon market―Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont―will hold a public meeting to discuss options to continue their climate leadership by making their program even stronger.

Governors, mayors, and numerous others, including many of the governors in the RGGI region, have delivered a message loud and clear that action against climate change won’t stop. This includes action under RGGI, which for the last decade has slashed pollution from Northeast and Mid-Atlantic power plants while creating jobs, protecting public health, and growing the economy.

At tomorrow’s meeting in New York City, which is scheduled as part of an ongoing review of the RGGI carbon limits, the states―along with consultant ICF International―will present new modeling of three different scenarios that would require additional carbon cuts in the region through 2030.

Below, in advance of the meeting, we provide a few key takeaways from the states’ modeling, and our thoughts on how the states can continue to lead on climate change.

(Spoiler: The states’ latest modeling shows RGGI can―and should―make ambitious carbon cuts through 2030. The states can make these cuts at a reasonable cost, and we have every reason to believe that RGGI’s numerous benefits would also continue to grow. To date, these benefits have included:

• Helping lower regional power plant carbon pollution by more than 40 percent;
• Creating thousands of jobs and more than $2.9 billion in regional economic growth;
• Saving consumers $618 million on energy bills, with billions more expected; and
• Preventing at least 8,200 asthma attacks, 39,000 lost work days, and 300 premature deaths by reducing dangerous air pollution. RGGI’s public health benefits are valued at $5.8 billion.)

1. Modeling Shows the Cost of Reducing Emissions is Dramatically Lower Than Before

ICF modeled three future carbon cap scenarios for the states, which would reduce emissions by between 2.5 and 3.5 percent per year through 2030. The states have not yet released detailed data from the modeling. (Based on past history, they will likely do so soon.) But one thing is abundantly clear from the information they released: the cost of reducing emissions is dramatically lower than what the states were predicting even a few months ago. In fact, as represented by the cost of a RGGI carbon allowance, it’s roughly half of their November prediction.

As we wrote recently, these savings are possible due to several favorable trends, including stronger renewable energy and energy efficiency policies adopted by several RGGI states over the last year, and continued declines in the costs of renewable energy technologies like wind and solar. Lower-cost emission reductions mean the states should be able to achieve even more reductions economically in the coming years, which is good news for the climate.

Because this modeling hasn’t yet accounted for the economic benefits of RGGI, it’s likely the costs of reducing emissions will shrink even further, if not disappear entirely. In fact, state reinvestments of proceeds from RGGI’s carbon allowance auctions in energy efficiency and other programs are actually saving consumers money. For example, RGGI investments from the first six years of the program, through 2014, are expected to save consumers $4.67 billion on their energy bills.

2. The Most Ambitious Carbon Reduction Scenarios Modeled Are Achievable at a Reasonable Cost

Equally important, the new modeling shows when it comes to power prices, the costs between the states’ three scenarios, which range from the less ambitious Scenario #1 (emission reductions of 2.5 percent per year starting in 2021) to the more ambitious Scenarios #2 (3.5 percent annually) and #3 (3 percent per year, but with an additional cap reduction in 2019), are nearly identical. That is, the cost to consumers of achieving the more ambitious carbon pollution cuts is only negligibly higher than the cost of the lowest level of pollution reductions modeled in Scenario #1.

Given these results, the RGGI states should focus on getting more carbon reductions under caps at least as ambitious as those in Scenarios #2 and #3, and drop the less ambitious Scenario #1.

In fact, large majorities of RGGI state residents―as well as NRDC and many other groups―support adopting even more ambitious carbon caps than included in the recent modeling, and analyses show that such reductions could bring substantial environmental, economic, and public health benefits.

Some have argued for a less ambitious cap based on a concern that as the RGGI states clean up their emissions, polluters will simply shift to non-RGGI states, a problem known as emissions leakage. Earlier modeling has shown that some leakage may occur under more ambitious caps, but the net effect in the eastern power grid is still lower carbon emissions. The economic benefits to the RGGI states of shifting to more in-state renewable energy and energy efficiency, instead of burning out-of-state fossil fuels, are well documented. And as more nearby states, such as Virginia, also take action to reduce emissions, leakage concerns should diminish further.

3. RGGI Should Reset Its Carbon Cap in 2019 to Stay on Track

We are pleased to see the states include in their analysis Scenario #3, which would reset RGGI’s cap in 2019 to more accurately reflect emission trends. As we explained in recent comments to the states, emissions in RGGI have been falling much faster than predicted, and are well below the RGGI limit. To lock in this progress and provide a more predictable and effective carbon price signal, it’s important for the states to lower RGGI’s cap in 2019.

Scenario #3’s 2019 cap adjustment would put the region on strong footing to achieve further carbon cuts, and we strongly endorse such a correction as part of the states’ final program review decision.

4. To Lead on Climate Change, the States Must Strengthen RGGI

RGGI has proven since its inception that bipartisan climate action is achievable and beneficial―economically, environmentally, and to public health. So it’s no surprise that RGGI governors from both sides of the aisle oppose President Trump’s Paris decision and pledged to achieve the agreement’s targets without him.

To turn these pledges into action, it is critical that the states continue to strengthen programs like RGGI, and commit to ambitious new carbon pollution cuts in the years ahead. As NRDC and 50 other groups wrote recently to the region’s governors, a stronger RGGI program must, first and foremost, include an ambitious carbon cap that extends through 2030. Consistent with this, and for the reasons outlined earlier, such a cap should achieve reductions at least in line with the trajectories modeled in Scenarios #2 and #3.

In addition, the states’ should adopt several key RGGI program elements and reforms, including:

• a full adjustment for excess banked allowances in the region;
• a higher price floor to ensure a minimum carbon allowance value;
• a significantly reformed Cost Containment Reserve; and
• a new, effective Emissions Containment Reserve (a concept explored in more detail recently on a webinar hosted by Resources for the Future).

While not a substitute for an ambitious cap level, these elements are key parts of a final package needed to ensure that RGGI continues to function as intended to achieve meaningful emission reductions.

The RGGI states have already proven that climate action is beneficial. Now they have a chance to take their effort one important step further and prove that, no matter what the White House says or does, with states like those in RGGI in the lead, our country can and will move forward on climate, together.