RGGI’s Benefits, Costs, and Why It Should Stay

Throughout the beginning of 2011, the Regional Greenhouse Gas Initiative (RGGI) —the first mandatory carbon dioxide (CO2) cap-and-trade program in the United States—was successfully defended by state legislators in three states where attempts were made to remove those states from the program. In the second week of May, the states of Delaware and Maine defeated bills proposing withdrawal, while in New Hampshire, Senators did not pass the House’s version of a withdrawal bill. But on May 26, New Jersey Governor Chris Christie announced that his state will leave RGGI by the end of the year.

Participating RGGI states cap CO2 emissions from power plants (those with generation capacities of at least 25 megawatts) and auction most of the emissions allowances. (Each allowance lets a power plant emit one ton of CO2.) RGGI’s CO2 emission allowance auctions raised $789.2 million for the 10 participating Northeast and Mid-Atlantic states from 2008 to the end of 2010. Meanwhile, consumers on average saw their monthly utility bills increase by less than $1. As highlighted in a February RGGI report, this allowance auction revenue has benefited the 10 participating states via investments in clean energy technology and energy bill assistance. These investments are creating clean energy jobs, saving consumers money, and deploying technologies that reduce the environmental impact of power generation.

In his statement on New Jersey’s withdrawal from RGGI, Republican Gov. Christie confirmed his belief in climate science and acknowledged that the problem of climate change must be addressed.  However, he stated that RGGI “is not effective in reducing greenhouse gases and is unlikely to be in the future,” calling it “a failure.” These statements are difficult to substantiate when one examines RGGI’s accomplishments across the region, and in New Jersey, specifically. Through clean energy investments, RGGI is helping to reduce GHG emissions. While the CO2 emissions decline in RGGI states from 184.4 million tons in 2005 to 123.7 million tons in 2009 can be partially attributed to the weather, the low cost of natural gas, and the economic recession, a February presentation by Jared Snyder, Assistant Commissioner at the New York State Department of Environmental Conservation, attributed 12 percent of the decrease to energy efficiency and customer-sited generation, and 4 percent to increased wind power. Investments of RGGI revenues have increased this type of clean energy technology deployment.

In New Jersey, through 2010 RGGI had raised $102 million, of which 50.7 percent was spent on strategic energy and greenhouse gas (GHG) reduction programs and 44 percent was spent on state budget deficit reduction. In 2010, New Jersey invested $29.6 million of its RGGI CO2 allowance proceeds as zero-interest loans and grants for 12 combined heat and power (CHP) and commercial-scale solar electric systems. These initiatives were projected to meet the electricity needs of 19,600 New Jersey households, reduce annual CO2 emissions by 84,000 tons, and avoid 1.7 million tons of CO2 emissions over the lifetime of the projects. When New Jersey diverted part of its strategic energy funding to curb the state budget deficit, these efforts were scaled back to 6 projects worth $12.3 million. Such diversions clearly diminish RGGI’s environmental benefits.

RGGI investments support the ‘triple bottom line’ of sustainability by also providing economic and social benefits along with the environmental improvements. Investments have resulted in reduced energy bills at a small cost to the consumer. Energy efficiency programs funded by RGGI are expected to avoid over $443 million dollars in electricity costs. Furthermore, RGGI proceeds have funded energy bill assistance and housing retrofits for low-income families. Evaluations estimate benefits of $2-$4 in savings for every $1 invested in energy efficiency and 18,000 job years created due to auction proceeds investments through December 2010.  These benefits come at a very small cost to consumers: in 2009, the average cost of the RGGI program was just 0.4 to 1 percent of monthly energy bills for residential consumers, or approximately $0.73 per month, across all 10 RGGI states.

RGGI can also play a role in the future of reducing GHG emissions. In fact, given that all states will be required to enforce greenhouse gas emissions standards for existing power plants in 2012 as part of Clean Air Act Sec. 111(d), the governor’s withdrawal of New Jersey from RGGI appears to be a shortsighted decision. RGGI could provide participating states with a market-oriented approach to comply with EPA regulations using an existing and tested cost-reducing policy mechanism that is already familiar to businesses and consumers.

Given his understanding of climate science and claim that RGGI is ineffective, perhaps Gov. Christie should have remained at the table to suggest ways to make the program stronger, for example, by tightening the emissions cap. A basic analysis of RGGI does not support the claim that the program is ‘ineffective’ given the multiple environmental, economic, and social benefits achieved at low cost.

Sam Wurzelmann is a Solutions Fellow