RGGI States Poised to Triple Down on Climate Progress

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

The recent election has created uncertainty about future U.S. climate leadership at the federal level, but hasn’t reversed the physics of climate change or stopped its destructive effects from marching forward. That’s why the leadership we’re seeing from the nine Northeastern and Mid-Atlantic states that make up the Regional Greenhouse Gas Initiative (RGGI) is now more important than ever in helping to sustain and bolster the global effort to cut greenhouse gas emissions.

In a public webinar this afternoon, the RGGI states—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont—will signal that they are nearing an historic decision to triple down on RGGI, their nation-leading climate program.

Already national pioneers on climate, the RGGI states now have to opportunity to once again demonstrate their leadership by adopting ambitious carbon pollution reductions as they undergo a program review.

Since the cap-and-invest program launched in 2009, RGGI has been a roaring success. In addition to helping cut carbon pollution in the power sector much faster than anticipated—by a substantial 37 percent—RGGI has provided at least $2.9 billion in regional economic growth, $10 billion in health benefits, 30,000 new job-years (a job-year equals one-year of full-time work), and $618 million in energy bill savings for consumers (with $4 billion more in savings expected in the coming years).

RGGI works by capping the amount of carbon pollution power plants in the region can emit, with the amount dropping by 2.5 percent annually through 2020; these power plants have to purchase allowances for the pollution they send into our already overloaded atmosphere. The RGGI states then invest the resulting revenue in energy efficiency, renewable energy, direct bill assistance, and other greenhouse gas abatement projects. The decisions the states make in the current program review process will determine the cap’s trajectory and other critical policy elements post-2020.

As documented by a new website, RGGI’s benefits have accrued to every state in the program. In fact, RGGI was so successful right off the bat that in 2013 the states doubled down on the program by cutting its carbon pollution cap nearly in half and committing to further reductions through 2020.

Now, the states are poised for a third round of carbon cutting to solidify the region’s bipartisan climate and clean energy leadership through 2030. Below, we provide our initial thoughts and three key takeaways from the states’ latest modeling and analysis, released in advance of the webinar, on how to best leverage RGGI to arrive at a post-2020 carbon cap commitment by the end of this year. NRDC will also be providing formal comments to the states in the week ahead, and we encourage others interested in climate protection in the nine-state region to do so as well by the November 30th deadline. (Instructions for submitting comments are available here.)

1. The analysis supports adopting a strong post-2020 cap.

RGGI is well positioned to cut carbon pollution further, and should be an attractive model for other states looking to lead on climate in the years ahead.

Eight years in, RGGI has proven that we can cut carbon pollution and grow our economy at the same time. As our friends at Acadia Center have shown, the RGGI states have both cut carbon pollution and grown their economies faster than states outside the program. With RGGI in place, its participating states are now well positioned to make further progress on emissions.

In their webinar, the states will present modeling results for two potential carbon reduction trajectories—2.5 percent and 3.5 percent per year (relative to RGGI’s 2020 cap) through 2030. The 3.5 percent cap, which would reduce carbon pollution by tens of millions of additional tons with just a modest increase in projected costs compared to the 2.5 percent level, looks particularly attractive. As NRDC and others have argued, an even more ambitious cap reduction, such as the 5 percent per year previously modeled by the states, is also eminently achievable—and broadly supported by the public—with big economic benefits.

RGGI’s success and the states’ signal that they plan to continue cutting carbon pollution (along with exciting progress in California) also sends a message to other states that the first movers in the clean energy economy see the benefits in continuing to cut carbon pollution much more deeply. Other forward-thinking states should learn from RGGI and consider joining the program, whether as a means to achieve the federal Clean Power Plan’s goals or to advance their own transitions to a clean energy economy through smart policies.

2. Benefits will outweigh the costs.

The projected costs of future carbon reductions are small, and will likely be more than offset by energy savings and economic growth spurred by RGGI’s investments.

Another big takeaway from today’s webinar is that RGGI can continue cutting carbon at a reasonable cost, even before considering the benefits from RGGI that will offset these costs. Previous modeling projected that an ambitious cap reduction of 5 percent per year would add less than a penny per kilowatt-hour to regional power prices in 2030. The states’ new modeling shows that reductions of 2.5 or 3.5 percent per year would increase prices by less than half a penny in 2030. As explained below, there are good reasons to believe that the actual costs will be even lower, and that once you account for energy efficiency investments under RGGI, consumers could end up saving money, as has been the case under the program to date.

First, there are several reasons to believe that the states’ cost projections are too high. As we’ve previously commented, many of the states have committed to increase clean energy independent of RGGI, which will make it easier to achieve a tighter carbon cap at a lower cost. While some of these policies have been incorporated into the modeling, others still do not appear to be, including Massachusetts’ recent commitment to procure 1,600 megawatts of offshore wind power and another 1,200 megawatts from hydropower, onshore wind, solar, or other renewable energy resources. Additionally, there is a long history of energy efficiency and renewable energy costs falling faster than predicted, which means that the states’ baseline projection very likely overestimates the actual costs of future emissions reductions. To capture this possibility, the states have modeled a “low emissions” sensitivity, in which natural gas prices remain low and renewables prices continue to fall rapidly, alongside their baseline scenario. Under this sensitivity, the projected cost impacts of continued cap reductions are even smaller.

Second, the states’ modeling so far has only considered the costs side of the equation without yet taking into account RGGI’s economic benefits, such as investments in energy efficiency, which will offset the program’s costs by saving consumers money on their energy bills and contributing to macroeconomic growth. RGGI’s benefits have been well documented and have significantly exceeded the costs of the program. This has been achieved in large part thanks to RGGI’s “cap and invest” model: Revenues raised under RGGI are invested in programs like energy efficiency, which frequently return more in bill savings than they cost to implement. There’s every reason to believe that continuing to cut carbon pollution under RGGI will continue to return such benefits. For example, an analysis by Synapse Energy Economics found that, when you include savings from energy efficiency and other measures, a cap reduction of 5 percent per year could help save consumers $25.7 billion on energy through 2030 and support 58,400 jobs annually.

Past experience with RGGI’s benefits has bearing on the states’ current modeling, which projects a very modest cost differential between a more ambitious 3.5 percent and less ambitious 2.5 percent cap reduction level. While a 3.5 percent cap is projected to be slightly more expensive—again, without the economic benefits of energy efficiency and renewable energy factored in—there is the potential for these additional costs to be partially or fully offset by the higher allowance revenues available to strengthen investments in energy efficiency at the more ambitious cap level. The RGGI states have achieved benefits by being bold, not timid, in addressing climate change, and they should continue on that path.

3. Key fixes are needed now to avoid digging ourselves a deep emissions hole by 2021.

These include (a) creating a new Emissions Containment Reserve (ECR); (b) reforming RGGI’s existing Cost Containment Reserve (CCR); and (c) continuing to adjust the cap to account for banked allowances.

Creation of an Emissions Containment Reserve (ECR): We are still evaluating additional ideas that will be presented on the webinar, including the states’ proposal to create a new ECR, which would automatically lower the RGGI cap to capture more emissions reductions if costs are lower than projected. While the specific mechanics of the ECR have yet to be hammered out, in concept, this appears to be a very valuable mechanism to add to the program. NRDC will be further discussing it in our formal comments to the states.

Fixing the existing Cost Containment Reserve (CCR): We are also encouraged that the states are continuing to evaluate reforms to RGGI’s current Cost Containment Reserve (CCR). As we’ve previously explained, the current CCR partially undermines emissions goals in the region while providing questionable cost benefits. Reforms to this mechanism are needed to strengthen the RGGI program and better achieve the CCR’s intended purpose—to provide flexibility in cases of truly unanticipated carbon price spikes in the region due to unforeseen contingencies. Specifically, the states should (i) decrease the number of additional allowances that the CCR contains, and (ii) increase the price at which those additional allowances are released into the market.

Account for banked allowances: In addition, to ensure RGGI’s future benefits, it is critical that the states adjust the final cap trajectory downward to account for the large bank of allowances that has been building since 2014. Because emissions have fallen faster in RGGI than predicted, and because of excess allowances released through the CCR, there are currently millions of tons of extra, over-allocated allowances in the region. If unaddressed, this allowance “hot air” could undermine emissions goals by enabling polluters to comply with future targets without actually reducing emissions. The fix is simple: The states should adjust the post-2020 RGGI cap downward by the size of the bank in 2020, just as they did to correct a similar problem when they last tightened the cap in 2013.

By committing to a strong carbon cap out to 2030, and by adopting the key program design reforms above, the RGGI states have an opportunity to affirm to the country and the world that the bold climate program they entered into a decade ago is alive and well. Since its inception, RGGI has been a bipartisan, market-based climate program that works. Its numerous benefits are well documented, and the opportunity to expand these benefits is at hand. Once again, it’s time for RGGI to lead.

About the Authors

Jackson Morris

Director, Eastern Region, Climate & Clean Energy Program

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