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Reinvigorating RGGI: June's Allowance Auction Success Shows Pollution Cuts Are Working To Improve This Innovative Program.

Luis Martinez

Posted June 19, 2013 in Solving Global Warming

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Two weeks ago, the Regional Greenhouse Gas Initiative’s (RGGI) quarterly pollution allowance auction brought in a near-record $124.4 million. That’s money nine Northeastern and Mid-Atlantic states will use, as the bipartisan group of governors who designed the program intended, to cut global-warming pollution, save consumers money on energy, and create an increasing number of good jobs that can’t be shipped overseas.

The auction results are great news in and of themselves.

But last week’s total—the second highest in RGGI history, and by far the highest since the Recession and plummeting natural gas prices reduced the need for pollution allowances overall—has done something more. It’s proved that the states’ recent plan to reduce the pollution limits allowed under RGGI is working as designed and reinvigorating the program.

Even before the nine states involved—Maine, Vermont, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, Delaware and Maryland—set new pollution limits in February, RGGI had a lot going for it. Since it began operating in 2008, the program has:

injected $1.6 billion in economic benefits into the regional economy;

• invested in efforts that will save consumers $1.3 billion on energy bills;

• created 16,000 job-years of work;

• kept $765 million in the local economy due to reduced fossil fuel demand; and,

• helped reduce power-plant carbon pollution by more than 30 percent, even as gross regional product has increased by 20 percent.

The energy-efficiency programs that make up the bulk of RGGI’s work typically produce three to four dollars in savings for every dollar invested. In places like the Connecticut Children’s Medical Center, in Hartford, for instance, RGGI-funded upgrades are enabling the medical center to save $23,000 a year on energy—benefits that accrue not just to the medical center itself but to its young patients as well. Likewise, at Cayuga Community College, in upstate New York, RGGI-supported solar panels and lighting upgrades allow the college to save $150,000 annually—money it can now put toward educating students.

Despite these successes, though, RGGI was in need of some fine-tuning. By operating under pollution limits established five years ago, pre-Recession and before the natural gas boom, the program’s emission limits were out of sync with actual emissions, which were substantially lower. That’s why, as part of the scheduled program review last winter, NRDC and our allies supported adjusting the global-warming pollution limits to actual levels. After more than three years of experience with the program and in the wake of Hurricane Sandy, the states agreed, lowering the current limits and requiring power plants to reduce their pollution levels by 2.5 percent annually as the decade progresses.

The success of the recent RGGI auction shows that the adjustments made to the program worked. Two weeks ago, there were more than twice as many offers as there were allowances to sell, and that’s the sign of a healthy market.  RGGI is once again able to deliver pollution reductions while allowing the market to figure out the most cost-effective way to do so. It’s investing in our transition to a clean energy future. 

The states’ decision to reduce the amount of permitted pollution “sent a strong signal to the market that the states have the political will to make this effective,” explains University of Virginia public policy professor William Shobe, who studies carbon markets. (Shobe was involved in the initial auction design, in writing a report on design possibilities in 2007.)

The advantages of the new RGGI pollution limits, and of the idea that these limits must be adjusted to meet current conditions, can be found in California as well, where the state’s new carbon pollution reduction program has been modeled after RGGI. Last month, allowance auctions in the Golden State raised more than $280 million that California will invest in energy efficiency and renewable energy, sustainable communities and clean transportation, natural resource preservation and waste diversion. 

Between RGGI and the California program, a full 25 percent of Americans now live in states that effectively control carbon pollution through market mechanisms.  

The allowance auction two weeks ago proved, once again, that cutting carbon pollution in a smart way creates jobs, saves consumers money on energy, and builds local and regional economies.

As the Environmental Protection Agency considers how to level the playing field and control global warming pollution as it is required to do, the Agency should take advantage of the states’ proven ability to lead and innovate in their commitment to build their economies and protect our environment.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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