Full Title: The Economic Impacts of the Regional Greenhouse Gas Initiative on Ten Northeast and Mid-Atlantic States
Author(s): Paul Hibbard, Susan F. Tierney, Andrea M. Okie and Pavel G. Darling
Publisher(s): Analysis Group
Publication Date: November 1, 2011
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Description (excerpt):
In 2009, ten Northeastern and Mid-Atlantic states began the Regional Greenhouse Gas Initiative (known as RGGI), the country’s first market-based program to reduce emissions of carbon dioxide (CO2) from power plants. Understanding the program’s performance and outcomes is important given that RGGI states account for one-sixth of the population in the US and one-fifth of the nation’s gross domestic product. Through the development of the RGGI program, these states have gained first-mover policy experience and have collaborated to merge a common policy into well-functioning electricity markets. Insights and observations gleaned from an analysis of the program’s performance will be valuable in evaluating past policy decisions and future policy recommendations.
RGGI has now been operating for nearly three years. The rights to emit CO2 have been auctioned off. Power plant owners have spent roughly $912 million to buy CO2 allowances. Consumers now pay regional electricity rates that reflect a price on CO2 emissions. These emissions have gone down, affected by both RGGI and larger economic conditions.1 States have received, programmed, and disbursed virtually all the $912 million in allowance proceeds2 back into the economy in myriad ways – on energy efficiency measures, community-based renewable power projects, assistance to low- income customers to help pay their electricity bills, education and job training programs, and even contributions to a state’s general fund. Figure ES1 shows RGGI proceeds by state and region.
Looking back, how has the RGGI program affected electricity markets, power producers’ costs, electricity prices, and consumers’ electricity bills? What happened to the $912 million in proceeds from the sale of CO2 allowances? Has the program produced net economic benefits to these states in its first three years, or otherwise helped them pursue their goals for “continued overall economic growth” and reliable electric supply, while also reducing CO2 emissions? What has been learned to date? These are the principal questions this study set out to address.
At the request of four foundations,3 Analysis Group has measured the economic impacts of RGGI’s first three years. Our analysis tracks the path of RGGI-related dollars as they leave the pockets of generators who buy CO2 allowances, show up in electricity prices and customer bills, make their way into state expenditure accounts, and then roll out into the economy in one way or another. Our analysis is unique in this way – it focuses on the actual impacts of economic activity: known CO2 allowance prices; observable CO2 auction results; dollars distributed to the RGGI states; actual state- government decisions about how to spend the allowance proceeds; measurable reductions in energy use from energy efficiency programs funded by RGGI dollars; traceable impacts of such expenditures on prices within the power sector; and concrete value added to the economy. By carefully examining the states’ implementation of RGGI to date, based on real data, we hope to provide a solid foundation for observations that can be used by others in future program design and to inform deliberations about RGGI going forward.