Report Shows Success of Mandatory Cap and Trade Program

A report released earlier this week by The Analysis Group, entitled “The Economic Impacts of the Regional Greenhouse Gas Initiative on Ten Northeast and Mid-Atlantic States,” tracked the dollars collected and spent by the program over RGGI's first three years of existence. The report finds that the program, despite continuous criticism from conservatives as being burdensome and costly, added a net value of $1.6 billion to the ten member states, or roughly, $33 per person.

According to their website, “The Regional Greenhouse Gas Initiative (RGGI) is the first market-based regulatory program in the United States to reduce greenhouse gas emissions. Ten Northeastern and Mid-Atlantic states have capped and will reduce CO₂ emissions from the power sector 10 percent by 2018.”

The mandatory cap and trade program works by selling emissions allowances to utilities, through auctions, and then invests the proceeds in efficiency, renewables and other clean technologies. Under the provisions, each can spend the money as they see fit.

The program was conceived as a way to spur investment and innovation in clean energy technology.

According to the report, utilities paid $912 million for the allowances in the period from mid-2008 through September of this year. This resulted in higher electricity rates that now reflected the social and environmental cost of carbon emissions. The funds were distributed into the states’ economies, based on each state’s priority. In general, investments were made in energy efficiency, renewables, direct utility assistance to low-income families, and education and job-training programs. Anywhere from 3-27 percent, depending on the state, went into the states’ general funds. Overall, more than 80 percent of the proceeds were directly invested in strategic energy programs.

Following the money, we see that the program costs utilities a total of $1.6 billion over the period in question. At the same time, consumers saw reductions in their utility bills of $2.1 billion, despite rate increases, because of the immediate impact of energy efficiency measures. This reflects average savings of $25 for residential consumers, commercial customers saved $181, and industrial customers saved $2,493 over the study period. These might not seem like particularly large savings, but keep in mind that the program’s primary goal was to reduce CO2 emissions, which critics claimed would cost lots of money, rather than saving any. Then there was an additional $1.1 billion collected by the states and disbursed into their local economies as described above.

According to the report, “…use of RGGI auction proceeds on programs leads to more purchases of goods and services in the economy (e.g., engineering services for energy audits, more sales of energy efficiency equipment, labor for installing solar panels, dollars spent to train those installers and educators, and so forth). Together, these dollar flows have direct and indirect multiplier effects locally and regionally.”

The multiplier effect of the spending depends on how the proceeds were spent. Those states that invested heavily in efficiency measures saw significant benefits in their electric systems, even before looking at the macroeconomic impacts.

Meanwhile, in NJ, Governor Chris Christie withdrew from the initiative, effective at the end of this year. He claimed that, ““RGGI has not changed behavior and it does not reduce emissions.” Furthermore, he said, “RGGI does nothing more than tax electricity, tax our citizens, tax our businesses, with no discernible or measurable impact upon our environment.”

However this ignores the facts, released in a report that came out the same day as his announcement which showed an 8.1% reduction in greenhouse gases, with the largest portion coming from the electric generation section, in the year from 2007-8, a period when NJ was heavily involved in RGGI.

[Smokestack Image credit/the||outsider/Flickr Creative Commons]

 

RP Siegel, PE, is the President of Rain Mountain LLC. He is also the co-author of the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water.  Like airplanes, we all leave behind a vapor trail. And though we can easily see others’, we rarely see our own.

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