New Data from Analysis Group Show Limiting Carbon Emissions from Power Plants Continues to Boost the Economy and Create Jobs
BOSTON, Mass. - April 17, 2018 — The nation’s first multi-state cap-and-trade program aimed at controlling carbon-dioxide (CO2) emissions from power plants continues to benefit the economy and boost employment, according to a new report by Analysis Group. Released today, the independent study is based on empirical economic data from the past three years, tracking the impact of the Regional Greenhouse Gas Initiative (RGGI) on the nine participating states − the six New England states plus New York, Delaware, and Maryland.
The report finds RGGI states realize $1.4 billion in net economic value from the program’s implementation in 2015 through 2017. The program’s implementation over that period also creates over 14,500 new job-years (the equivalent of one fulltime job for the duration of one year). All of the participating RGGI states experience benefits, including employment growth and net economic benefits for electricity consumers, with those dollars flowing back into the local economy.
“During this period, the emissions cap for power plants in the region was lowered, and the prices power generators had to pay for emissions rose,” said report coauthor Paul Hibbard, a Principal with Analysis Group. “Some observers had wondered whether tightening emissions targets would choke off the modest but consistent stream of economic benefits the region has seen since RGGI went into effect in 2009. But that didn’t happen: economic benefits and job creation continued, at magnitudes similar to what we’ve seen in previous study periods.”
Previous reports from Analysis Group also found positive impacts from the RGGI program: the authors’ 2015 report found $1.3 billion in net economic benefits flow to RGGI states from program implementation in 2012-2014 (net present value, in 2015 dollars), while the authors’ 2012 report found $1.6 billion in net economic benefits from program implementation in 2009-2011 (net present value, in 2011 dollars).
Looking back at nearly a decade of the RGGI program implementation, CO2 emissions from power plants have dropped by over 50 percent, while states accrue net economic benefits on the order of $4 billion and the creation of over 44,000 new job-years. Emissions reductions have come about due to many factors, including the implementation of RGGI.
The new report — The Economic Impacts of the Regional Greenhouse Gas Initiative on Nine Northeast and Mid-Atlantic States: Review of RGGI’s Third Three-Year Compliance Period (2015-2017) — will be presented Tuesday, April 17, at the Public Utility Current Issues Conference at New Mexico State University, in Santa Fe, New Mexico.
Among the report’s highlights:
The RGGI region gains $1.4 billion in net economic value – or $34 in value added per capita – from the program’s implementation during the 2015-2017 period. Consumers and the broader economy benefit from states spending RGGI auction proceeds on energy efficiency measures, community-based renewable power projects, credits on customers’ bills, billpaying assistance for low-income ratepayers, greenhouse gas reduction measures, education and job training programs, and other programs.
RGGI is boosting employment across the region and in each state, supporting over 14,500 new job-years. Job-years related to RGGI activities include performing efficiency audits, selling products related to energy efficiency and renewable energy, installing energy-efficient appliances and systems, training people on conservation, and working on other energy issues. This increase in employment comes on top of the nearly 14,200 job years created from RGGI’s implementation over the years 2012-2014, and more than 16,000 job-years RGGI created from implementation during 2009- 2011.
Over the past three years, RGGI has helped to lower the total amount of dollars member states send outside their region in the form of payments for fossil fuels by over $1 billion. RGGI has lowered states’ total fossil-fired power production and their consumers’ use of natural gas and oil for heating.
Energy consumers overall – households, businesses, government users, and others – enjoy a net gain of over $220 million, as their overall energy bills drop over time. Local reinvestment of RGGI dollars in energy efficiency and renewable energy programs tends to offset the impact of increased wholesale electricity prices resulting from the cost of RGGI allowances. Consumers experiencing energy savings tend to invest those extra dollars back into the local economy, serving to further boost local and regional economies.
The economic benefits of the RGGI program remained comparable despite higher CO2 allowance prices and lower allowance volumes experienced in the 2015-2017 compliance period. Total auction proceeds for the three-year period were only slightly lower than in the previous two compliance periods, reflecting the offsetting effects of the increase in allowance prices and lower allowance volumes.
As a group, power plant owners experience net revenue losses, although owners of nuclear and renewable energy power plants have seen slight revenue gains. While power plant owners in total have recovered the costs of buying CO2 allowances in the short run, they experience lower output and revenues in the long run. Nuclear and renewable owners do not have to buy CO2 allowances and receive the benefit of slightly higher wholesale market prices, netting them slightly higher revenues than they would have in the absence of the RGGI program.
Under RGGI, each year the nine RGGI states offer a declining number of CO2 emission allowances for sale through regional auctions. Owners of fossil-fired power plants buy those CO2 allowances, which authorizes them to emit specific amounts of CO2, or find ways to clean up carbon emissions.
Over nine years of RGGI operations, a total of $2.8 billion in auction proceeds has flowed to member states. Each state decides independently how to spend this money, adjusting spending plans over time to meet shifting objectives and the fast changing realities of the energy market. The states have sent most of the money raised back into the economy by funding energy-efficiency programs, renewable power projects, clean-energy career jobs training, and other clean-energy programs.
The Analysis Group report tracks these RGGI-related dollars as they leave the pockets of power companies that buy CO2 allowances, show up in electricity prices, make their way into state accounts, and then roll out into the economy (including in ways that lower customers’ electricity bills). These dollar flows have a positive net effect on the region’s economy.
The study is unique in its focus on actual, historical flows of payments and economic activity. This includes known CO2 allowance prices, observable CO2 auction results (in terms of prices and quantities sold), dollars distributed from the auction proceeds to the RGGI states, actual state government decisions about how to spend the allowance proceeds, measurable reductions in energy use from energy efficiency programs funded by RGGI dollars, traceable impacts of such expenditures on prices within the power sector, and concrete value added to the economy over the forecast period (to 2027).
“RGGI was not designed to be an economic development program. It was designed to cut greenhouse gas emissions, which it is doing successfully,” said report coauthor Susan F. Tierney, a Senior Advisor with Analysis Group. “But the point of our work is to chart any economic side effects. The data continue to show that cutting carbon emissions can be a net positive for the economy.” RGGI is the nation’s first multi-state CO2 emissions control program. The RGGI member states revised the program design in 2014, reducing the regional carbon emissions cap by 45 percent, with a further decrease of 2.5 percent in each following year through the current study period.
The report is being released as RGGI states consider new rules that would reduce the emissions cap further through 2030. Meanwhile, other states are considering setting up their own emissions-control programs or joining RGGI’s pioneering capand-trade program.
“We hope this report will help inform decision making on the part of state regulators, policymakers, utilities, and other stakeholders,” Hibbard said.
The Analysis Group report is an independent project of the RGGI Project Series, and available free for download here: http://www.analysisgroup.com/RGGI
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About Analysis Group: Analysis Group is one of the largest economics consulting firms, with more than 850 professionals across 14 offices in North America, Europe, and Asia. Since 1981, we have provided expertise in economics, finance, health care analytics, and strategy to top law firms, Fortune Global 500 companies, and government agencies worldwide. Our internal experts, together with our network of affiliated experts from academia, industry, and government, offer our clients exceptional breadth and depth of expertise.