State Clean Energy Policies Make Stronger RGGI a No-Brainer

September 27, 2016/ Jackson Morris / Air Quality, Climate, Conservation, Europe, Natural Resources Defense Fund, North America, Resources

Published by the Natural Resources Defense Fund

This blog post was written with my colleague Bruce Ho.

As the nine Regional Greenhouse Gas Initiative (RGGI) states continue to engage in discussions about what their program should look like after 2020, they’ve been wasting no time ramping up the very renewable energy and energy efficiency policies they need to further slash carbon pollution, increase jobs, and make meeting a more ambitious RGGI cap even cheaper than originally projected.

As we’ve written about before—and as further confirmed by a new report on RGGI’s benefits released by the RGGI states just yesterday—the pioneering RGGI carbon cap-and-invest program has been a smashing success. It’s run collectively by Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. And since 2009, it has:

• helped cut power plant carbon pollution by more than 37 percent;
• generated $2.9 billion in economic benefits;
• saved 4.6 million households and more than 21,000 businesses a substantial $618 million on their energy bills—with $4 billion more in savings expected in the coming years;
• created 30,000 job-years (a job-year equals one-year of full-time work); and
• saved $10 billion in health costs, thanks to reduced air pollution.

RGGI has been so successful, in fact, that in 2013, the states decided to double down on the benefits by lowering the program’s carbon cap (the level of pollution allowed) by 45 percent, and then committing to further cuts through 2020. The states are now considering commitments to continue cutting emissions after that date.

That’s where the states’ recent progress on complementary policies for renewable energy and energy efficiency comes in. The progress that states like New York, Massachusetts, Connecticut, Rhode Island, and Vermont have made already, and additional state clean energy progress that’s still in the works, will enable RGGI to adopt a stronger carbon cap going forward at a lower cost. It will also help the RGGI states to meet their economy-wide greenhouse gas reduction targets of 40 percent by 2030 and (at least) 80 percent by 2050. Those are the amounts scientists say we have to cut if we’re to avoid climate change’s worst effects.

Having already committed to strong renewable energy and energy efficiency policies, the RGGI states can ambitiously lower their pollution cap after 2020 as they create new jobs, save consumers serious money on energy, and improve public health. Given how many rewards the region has already reaped from strengthening the program in the past, making RGGI even stronger in the future should be a no-brainer.

Here are just some of the recent clean energy victories across the region, which will make it even easier to achieve a stronger RGGI cap that continues to reduce emissions by at least a true reduction of 2.5 percent per year—and hopefully goes even further, with a 5 percent annual reduction.

New York’s Commitment to 50 Percent Renewable Electricity Is a Big Win for RGGI

Last year, New York Governor Andrew Cuomo committed to getting 50 percent of New York’s electricity from renewable energy by 2030. And last month, the state’s Public Service Commission (PSC) turned this commitment into policy by adopting the Clean Energy Standard (CES), which requires New York utilities to meet the governor’s “50 by ‘30” target. Combined with stronger utility energy efficiency targets that ramp up quickly to achieve new incremental energy savings of at least 3 percent annually—targets we hope to see from the PSC later this year—the CES will ensure that New York’s electricity grid is significantly cleaner in 2030 than it is today, and will make it even easier to achieve a strong 2030 RGGI cap.

That’s what the RGGI states’ modeling shows: With the emissions reductions from New York’s CES included in the region’s projected future emissions, we can keep making progress in RGGI after 2020 at a very reasonable cost. According to the states’ modeling, continuing RGGI’s current rate of cap decline—2.5 percent per year—has been projected to increase electricity prices by only half a penny per kilowatt-hour in 2031. Even more striking, doubling the decline to 5 percent a year will likely add less than half a penny more.

There are good reasons to believe that the actual costs of a stronger RGGI will be even lower, and that the bill savings and job-creation benefits from a stronger program will exceed these costs. Thanks in large part to the RGGI states’ wise investments of program revenues in energy efficiency, cutting carbon pollution under RGGI has actually saved consumers at least $618 million on their energy bills, with a staggering $4 billion more in savings expected in the coming years as a result of investments that have already been made. Similar investments in future years and their associated savings haven’t yet been taken into account in the states’ publicly released modeling. However, the consulting group Synapse Energy Economics has calculated that a RGGI cap reduction of 5 percent per year, combined with other measures, could save consumers $25.7 billion on their energy bills through 2030 and support 58,400 jobs annually. That’s big money and a lot of jobs.

New Clean Energy Commitments by Massachusetts, Connecticut, Rhode Island, and Vermont—and Possibly Maryland Soon—Will Provide Similar Benefits

New York isn’t the only RGGI state making big news on renewable energy. Last year, Vermont committed to get 75 percent of its electricity from renewable sources by 2032. In July, Rhode Island Governor Gina Raimondo signed into law a requirement to grow her state’s renewable portfolio standard (RPS) by 1.5 percent per year; it will reach 40 percent in 2035. And in August, Massachusetts Governor Charlie Baker signed state energy legislation that seeks to procure 1,600 megawatts of clean, renewable offshore wind power and another 1,200 megawatts from hydropower, onshore wind, solar, or other renewable energy resources. Rhode Island and Massachusetts’ new laws further build on a joint solicitation those two states announced with Connecticut last year to procure the new clean energy they need to achieve the states’ collective clean energy goals, including Connecticut’s requirement to hit 27 percent renewable electricity by 2020.

Unlike New York’s CES and Vermont’s renewable energy target, the benefits of Massachusetts, Connecticut, and Rhode Island’s new clean energy commitments, which are significant, haven’t yet been factored into the RGGI states’ modeling. Our friends at Acadia Center, however, have done the math and shown that the Rhode Island RPS and procurements of hydropower by these three states could slash 5.3 million tons of carbon pollution in 2030 alone, and cut more than 45 million tons overall between 2020 and 2030. According to Acadia Center, the three states’ 2030 reduction “equates to 27% of the difference between the 2.5% and 5% cap” reduction levels per year that the states are considering, and their cumulative 2020-2030 reduction “fulfills 42% of the total cumulative emissions difference between the 2.5% and 5% cap.”

In other words, like the CES, the measures enacted by these states are bending the RGGI states’ emissions trajectory downward and will make it even easier to achieve not just a continued cap reduction of 2.5 percent per year, but also a more ambitious 5 percent per year reduction. Achieving that ambitious 5 percent reduction would better align with current emissions trends in the region and the RGGI states’ overall climate goals. What’s more, the states are likely to continue strengthening their clean energy policies in the future. The RGGI states have long been leaders in achieving increasingly higher levels of energy efficiency, with all nine ranked in the top half of the most recent State Energy Efficiency Scorecard, released today and published by the American Council for an Energy-Efficient Economy; six of the states are in the top 10. (Massachusetts leads the way at #1, by the way, with Vermont coming in third, Rhode Island fourth, Connecticut and New York tied for fifth, and Maryland ninth.) Maryland’s legislature may also soon strengthen its state renewable energy portfolio standard.

As states in the region continue to strengthen their individual renewable energy and energy efficiency commitments, these essential complementary policies will continue to make it easier to achieve a more ambitious RGGI cap by further lowering emissions and the costs of the RGGI program.

A Stronger RGGI Also Works with Potential Wholesale Electricity Market Reforms

Recently, there have been discussions in New York (at the NYISO) and New England (at ISO-NE through NEPOOL), and, to a lesser extent, with the giant grid operator PJM, about the possibility of applying a carbon price in wholesale electricity markets (as well as other possible market reforms) in order to better align those electricity markets with state and regional public policies that are ramping up clean energy and tackling climate change. (In some cases, these reforms could have the effect of providing financial support, as well, to existing nuclear generators during the transition to truly clean renewable energy.)

RGGI, in effect, already provides a wholesale carbon price in these states and regions, through a requirement that fossil fuel generators buy carbon allowances for each ton of carbon pollution their power plants create. The states sell these allowances at periodic auctions, and because the cap declines annually, the states sell fewer allowances each year, which results in emissions declines over time. The market for RGGI allowances sets the price, and this price fully and transparently passes through into wholesale electricity prices because fossil fuel generators must include the cost of carbon allowances in their market bids.

However, at a current $4 to $5 per ton, the cost of a RGGI allowance is well below the full cost to society of emitting a ton of carbon pollution. For example, the U.S. Environmental Protection Agency estimates that the amount of damage caused in 2017 by emitting one ton of carbon pollution, or that can be avoided by not emitting it, also known as the social cost of carbon, is about $42 per ton. In recognition of the fact that RGGI prices do not reflect carbon’s full social costs, the recent discussions in New York and New England have focused on possible carbon prices higher than RGGI’s current carbon allowance price.

While there are many complex issues involved here, the good news is that if wholesale grid operators were to incorporate a new carbon price, this price could be designed to work seamlessly with RGGI.

In fact, the most straightforward way to increase the carbon price in wholesale electricity markets is to strengthen RGGI. As noted above, this doesn’t have to increase consumer costs (and can actually lower bills) if the states continue to wisely invest RGGI revenues in energy efficiency, as they have in the past. A tighter cap will increase the price of carbon allowances paid by fossil fuel generators, thereby providing an economic advantage to cleaner energy. And a tighter cap will correspondingly increase the carbon price seen in wholesale markets, moving that price closer to the actual social cost. Because RGGI cuts carbon pollution from power plants so cheaply and effectively, strengthening RGGI should be the first priority of the wholesale markets considering this option and the states they operate in. Such an effort can dovetail with RGGI’s proven successes and the RGGI states’ current consideration of more ambitious RGGI cap levels, as the states aim to reach a decision on the cap before the end of the year.

After the RGGI cap decision is made, wholesale grid operators in consultation with states and stakeholders could then look to build on RGGI. They could, for instance, adopt a formula that would provide for a higher desired wholesale carbon price and account for (and subtract) the RGGI carbon price from that price. This would ensure that any “carbon adder” in the wholesale markets works in concert with the RGGI price. In designing such pricing mechanisms, regulators should consider the program designs that have made RGGI a success—particularly state decisions to reinvest RGGI’s carbon revenues in energy efficiency—to ensure that any additional revenue generated by a wholesale market carbon adder is similarly invested to provide the maximum benefit to consumers at the lowest cost. (It’s also worth noting that RGGI provides a ready-made compliance option for EPA’s Clean Power Plan; it’s less clear how a multi-state wholesale market construct might meet that requirement without significant, additional design work.) 

NRDC is actively participating in these wholesale market discussions. But as far as RGGI goes, the message to RGGI’s governors is clear: Keep moving full steam ahead!

Moving Full Steam Ahead on RGGI

The states’ recent advances on renewable energy and energy efficiency are complementary to RGGI and have already helped unlock the potential for a stronger, post-2020 RGGI cap. These clean energy advances will continue to reduce carbon and generate significant economic and public health benefits. Now it’s time for the governors of the RGGI states to solidify this progress by pushing this innovative program and the region forward with a commitment to cut the cap by at least a true reduction of 2.5 percent per year—and hopefully closer to 5 percent, which is in line with the cuts needed to achieve the states’ economy-wide climate goals most cost effectively, through 2030. With the progress the RGGI states have already made, creating a stronger RGGI along these lines, and an agreement before the end of the year, should truly be a no-brainer.

About the Authors

Director, Eastern Energy Project

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Read the full article at: https://www.nrdc.org/experts/jackson-morris/state-clean-energy-policies-make-stronger-rggi-no-brainer