Raising Up RGGI Right: The Teenage Years

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

A wise man once said that when it comes to raising kids, especially fussy babies and toddlers: “The days are long, but the years are short.” So it is with our boy RGGI (full name: the Regional Greenhouse Gas Initiative), who is on the verge of entering his teenage years. His nine parent states (he used to have ten, but a certain deadbeat dad has since disowned him—we’re working on that) are tasked with charting a post-2020 path for his future. Whether he makes the climate honor roll or coasts through with barely passing grades will be determined by decisions those parent states make in the coming months.  

Those parents aren’t slouches. The nine of them—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont—created the nation’s first cap-and-trade program that cuts carbon pollution from the power sector, while creating jobs, saving consumers serious money on energy, and improving public health. And these nine states, either by law, by executive order, or by policy, have some of the most ambitious economy-wide climate targets in the nation, with most aiming to cut greenhouse gas emissions by 35-45 percent economy-wide by 2030. They’re not stopping there, either: All but one of the states have adopted targets to reduce greenhouse gas emissions by at least 75-85 percent by 2050, the level scientists tell us we need to protect our kids from climate change’s worst effects. A strong and effective RGGI program is key to achieving these 2030 and 2050 targets.

This year, the RGGI states are participating in a scheduled review to decide the future of the RGGI program after 2020. And, like all parents assessing their kid’s direction, they have important decisions to make. They can either drop the ball where it is, figuring the kid has made enough progress—say, a middle-school education’s worth—or they can increase the substantial benefits RGGI provides to their residents and the region’s climate leadership, too. To do that, they must commit to further cuts in power-sector carbon pollution that will continue RGGI’s progress out through 2030 and go beyond the minimum requirements of the U.S. Environmental Protection Agency’s Clean Power Plan, the “CPP.” (Effectively implemented, the CPP will ensure the nation as a whole begins cutting dangerous carbon pollution from the power sector, to the tune of roughly a 32 percent reduction from 2005 levels by 2030. But RGGI, a carbon-cutting prodigy, has already been at this for a while and deserves opportunities to reach his full potential.)

As NRDC and our allies in the environmental and public health communities explained in comments we filed with the RGGI states this week, there’s much the states can do to build on their A+ parenting so far, including: considering more ambitious carbon pollution reductions in the states’ analysis of program alternatives; reforming RGGI’s currently flawed “Cost Containment Reserve” (CCR) mechanism; and broadening RGGI’s carbon market intelligently, in ways that will enhance national climate ambition.

Where are we headed? The RGGI states must model and consider more ambitious carbon-pollution reductions for 2021-2030

The first step in the states’ review of the RGGI program is modeling potential future caps on power-plant carbon pollution from 2021-2030 and their anticipated effects. In addition to running a scenario that has the states merely adopting their CPP targets (which would require very little, if any, reductions for that decade) and one that shows a continued 2.5 percent annual decline in the carbon cap, we’ve asked the states to model a 5 percent reduction in pollution annually (a reduction of just under 4 million tons per year). (The two-pager NRDC submitted to RGGI on this subject can be accessed here.) The program has already been cutting carbon pollution at roughly this rate since 2009, all while creating public health savings estimated at more than $10 billion, generating 30,000 job-years, producing almost $400 million in consumer energy savings, and contributing $2.9 billion to the regional economy. According to the consulting group Synapse Energy Economics, continuing to cut power-plant carbon pollution by 5 percent per year through 2030 could save consumers an additional $25.7 billion on their energy bills and add an average of 58,400 new jobs a year. Synapse also found that a 5-percent-per-year reduction in power-plant carbon pollution through 2030 is consistent with a “least-cost pathway” to achieving the states’ 2030 climate targets. So considering a 5-percent-per-year reduction in the RGGI cap makes a lot of sense.

Limiting the states’ analysis to these first two scenarios—minimum CPP compliance, and 2.5 percent annual cuts—alone would be a big mistake, a little like letting your teenager out on a Saturday night with a fake ID and no curfew. The purpose of these modeling exercises is to inform policy decisions. So considering a wider range of future RGGI policies—including a 5-percent-per-year reduction in carbon pollution—will ensure that the states have the information they need to secure RGGI’s benefits into the future and remain on track to achieve their climate goals for 2030 and beyond.

A critical point to bear in mind is that modeling this 5-percent-per-year scenario does not mean the states are locking themselves into that policy future, much in the same way that visiting a college on a tour doesn’t require you commit to going there. Rather, it simply provides the states and relevant stakeholders with the essential data points they need to weigh various considerations and priorities and make well-informed decisions. Absent this third, modeled scenario, that decision will be made without a sufficiently robust analysis to back it up.

Where’s all that hot air coming from? Fix the problematic Cost Containment Reserve loophole

In addition to adopting a strong post-2020 cap, there are some additional tweaks the RGGI states should make to strengthen the program. In particular, RGGI’s current cost-containment reserve (CCR), which was originally intended to prevent price spikes, hasn’t been working as planned and has created a problematic loophole that threatens to undermine RGGI’s gains. As commenters noted at a recent panel sponsored by the Duke Nicholas Institute, Resources for the Future, the Georgetown Climate Center, and the Collaborative for RGGI Progress, RGGI’s CCR may actually have raised carbon prices in recent years, while increasing the region’s carbon pollution cap by millions of additional tons. As currently designed, the CCR could allow an additional 50 million tons of carbon pollution into our atmosphere between 2016 and 2020 alone, erasing the program’s existing cuts and fueling more extreme weather events and the public health, economic, and personal devastation that come with them. The RGGI states’ own analysis shows that continuing the current CCR after 2020 would similarly increase carbon pollution in future years. Moving forward, the CCR needs to be fixed—to provide a more effective mechanism that appropriately addresses unanticipated price spikes. (That is, the RGGI states need to set at a more meaningful price trigger that may occur from truly unanticipated contingencies rather than simply setting the price slightly higher than they anticipate allowances will cost.) The states need to do this while also preserving RGGI’s environmental integrity, which can be achieved by taking any CCR allowances from “under the cap” rather than adding additional allowances and pollution to the program. Either that, or the whole CCR should be scrapped.

Who will RGGI dance with? Strike the balance between high standards and being left as a wallflower

We have to ensure that if the RGGI states expand their carbon market so they can trade carbon emissions allowances with other states outside of the current nine-state region, as allowed under the CPP, they do so intelligently. A larger emissions trading program offers potential advantages in terms of flexibility and expanded opportunities for cost-effective carbon reductions. But trading could also undermine the RGGI program if it lacks the necessary safeguards.

Under the CPP, states that choose a mass-based approach to compliance can choose to cover only existing power plants, or can use an approach that covers both existing and new power plants. An explicit precondition to trading with any states outside the region must be that RGGI links only with states that include both existing and new plants in their plans.  Otherwise, trading would risk simply shifting electricity generation and associated carbon pollution from existing fossil-fired power plants in the RGGI region, which must increasingly reduce emissions, to new, unregulated fossil-fired power plants in other states, a problem known as emissions “leakage.” It would also drive perverse market signals and market distortions, since new plants would not be required to pay for carbon allowances to cover their pollution and therefore would have a competitive advantage over other facilities. Ensuring that RGGI’s trading partners regulate both new and existing power plants, as RGGI already does, will prevent emissions leakage and protect environmental benefits, preserving and enhancing climate ambition both within RGGI and outside of it.

The RGGI states have been pretty impressive parents to the maturing RGGI so far, trailblazers in cutting carbon pollution from power plants, increasing benefits to their residents, and showing the rest of the country that climate protection and economic development can work hand in hand. Under both Democratic and Republican leaders, the RGGI states have created and met the kind of climate targets we hope other states will follow. But we and they still need to do much more to solve the climate problem. To fulfill their own longer-term climate goals, which include economy-wide emissions targets for 2030 and 2050, and to realize the hopes of their residents, the RGGI states should continue on the path they’ve pioneered so far: imagining ambitious and achievable carbon-cutting scenarios and developing rules for carbon reduction programs that will achieve this future while serving as models for states nationwide.

That’s how you raise RGGI right.