by Todd Griset | PretiFlaherty
JDSupra.com news story
For 8 years, states in the Northeastern U.S. have participated in the Regional Greenhouse Gas Initiative. RGGI, the first market-based greenhouse gas regulatory program in the United States, represents a cooperative effort by participating states to cap and reduce greenhouse gas emissions from the electric power sector, coupled with a market for auctioning and trading emission allowances. While some groups feared that the RGGI program would increase electricity prices, a recent report by the Maine Public Utilities Commission found that the impact of RGGI on electricity prices in Maine has been relatively modest — while finding that RGGI-funded programs contribute to economic development and reduce greenhouse gas emissions.
RGGI formed in 2007, when ten states — Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont — agreed to first cap, and then slowly reduce, the greenhouse gas emissions of their electrical energy sectors by 10% by 2018. While New Jersey withdrew in 2012, the program has remained strong; in 2014, the remaining states subsequently tightened the RGGI cap for 2014 from 165 million short tons of carbon to 91 million short tons, then further declining 2.5% per year from 2015 to 2020.
While each participating state adopted its own laws implementing RGGI, in general the RGGI laws require certain generators of electricity to track their carbon emissions and acquire an “allowance” for every ton of carbon dioxide or its equivalent that they emit. States conduct periodic auctions of allowances, and market participants are free to engage in secondary market trades. Generators must purchase or trade for enough emissions allowances to match the number of tons of CO2-equivalent emitted. The cost of acquiring these allowances gives generators an incentive to improve their efficiency or switch to fuels with a lower carbon intensity.
Each state also adopted its own laws governing the use of funds raised by state auctions of RGGI allowances. In Maine, most funds go to the Efficiency Maine Trust for purposes including measures, investments and arrangements that reduce electricity consumption or reduce greenhouse gas emissions and lower energy costs at commercial or industrial facilities, and for investment in measures that lower residential heating energy demand and reduce greenhouse gas emissions.
RGGI has conducted 27 quarterly allowance auctions since September 2008, through which Maine has received a cumulative total of $ 62.22 million in RGGI auction proceeds. Maine’s auction proceeds in 2014 totaled $11.37 million. According to the Maine Public Utilities Commission’s report:
the annual cost to Maine ratepayers of the RGGI program was approximately $0.0024 per kWh. For the average Maine residential customer using 530 kWh per month, the 2014 RGGI program cost was approximately $ 1.27 per month. For a commercial customer using 25,000 kWh per month the 2014 RGGI program cost was approximately $60.00 per month. A large commercial or industrial customer using 500,000 kWh per month would have had a 2014 RGGI program cost of approximately $1,200 per month.
On the benefits side of the ledger, the Commission’s report cites a finding that “all RGGI proceeds since 2008 are expected to return more than $2 billion in lifetime energy bill savings to more than 3 million households and more than 12,000 businesses across the eight states taking part in RGGI.” The Commission also cited its July 2014 report to the Legislature quantifying the increases in employment, real personal income, and gross state product expected to occur in Maine as a result of the cap tightening and other changes implemented in 2014. That report found:
economic impacts for the New England region include a cumulative increase in Gross Regional Product of over $2 billion, a cumulative increase in employment of 38,900 job-years, and a cumulative increase in real personal income of $1.5 billion including a cumulative increase in Maine Gross State Product of $200 million, a cumulative increase in employment of more than 5,000 job-years, and a cumulative increase in real personal income of $100 million.
Based on these observations, the Maine Public Utilities Commission’s 2015 report on RGGI concludes that “the impact of RGGI on electricity prices has been relatively modest, while RGGI-funded programs contribute to the gross state product, job growth, and personal income, and also reduce greenhouse gas emissions.”