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Tuesday, June 4, 2013

The Regional Greenhouse Gas Initiative: Lessons Learned and Issues for Policymakers

Jonathan L. Ramseur
Specialist in Environmental Policy

The Regional Greenhouse Gas Initiative (RGGI) is the nation’s first mandatory cap-and-trade program for greenhouse gas (GHG) emissions. As of January 1, 2012, RGGI involves nine states—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. The RGGI cap-and-trade system applies only to carbon dioxide (CO2) emissions from electric power plants with capacities to generate 25 megawatts or more— approximately 168 facilities. The RGGI emissions cap took effect January 1, 2009.

The initial results of the RGGI program may be instructive to policymakers. Several of RGGI’s design elements generated considerable interest during the development and debate of federal proposals to address GHG emissions. In particular, the program’s emission cap has received particular attention. Since the cap took effect in 2009, it has not compelled regulated entities to make internal emission reductions or purchase emission credits from other sources. Several factors led to this outcome: RGGI’s cap design, an economic downturn, and a substantial shift to less carbon intensive fuels. In 2005, RGGI states generated 32% of their electricity from coal and petroleum, sources of energy with relatively high carbon intensity. In 2011, these sources generated 12% of RGGI’s electricity.

To address the disparity between the cap and actual emissions, in February 2013, RGGI participants proposed to substantially reduce the existing cap. The proposed cap would take effect in 2014 and would be based on 2012 emission levels. However, RGGI state legislatures and/or agencies must alter relevant statutes and/or regulations before the proposed cap can take effect.

Although RGGI’s emission cap has had limited impact on the region’s power plant emissions, the program has had other effects. The cap’s existence (coupled with unlimited emission allowance banking and an auction reserve price) attaches a price to the regulated entities’ CO
2 emissions. Because the cap is currently non-binding, this price acts like an emissions fee or carbon tax.

RGGI states have sold 89% of their emission allowances through quarterly auctions. The auction proceeds—over $1.2 billion to date—have provided a new source of state revenue, which have been used to support various policy objectives. RGGI states (as a group) have contributed the majority of the emission allowance value (65%) to support energy efficiency, renewable energy, or other climate-related efforts. Several RGGI studies indicate that supporting energy efficiency provides multiple benefits: emission reduction, consumer savings via lower electricity bills, and job creation. However, RGGI states have demonstrated that revenue allocation strategies are subject to change. For example, after initially allotting auction proceeds to energy efficiency efforts, three states have transferred auction proceeds to address state budget deficits, drawing criticism from some environmental groups.

As a group, the nine RGGI states account for approximately 7% of U.S. CO
2 emissions (and 16% of U.S. Gross Domestic Product). RGGI’s aggregate emissions rank in the top 20 among all nations. But from a practical standpoint, the RGGI program’s contribution to directly reducing the global accumulation of GHG emissions in the atmosphere is arguably negligible. However, RGGI’s activities may stimulate action in other states or at the federal level: when confronted with a growing patchwork of state/regional requirements, industry stakeholders may support a singular national policy.

Date of Report: May 21, 2013
Number of Pages: 21
Order Number: R41836
Price: $29.95

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