The Regional Greenhouse Gas Initiative: A Burden to Consumers or a Solution to the Climate Crisis?
By Anna Singh, B Corp Intern
Introduction
Climate change is arguably the most crucial and defining issue of the twenty-first century. Energy systems around the world are increasingly undergoing transitions from carbon intensive to low-carbon or renewable systems in order to mitigate greenhouse gas (GHG) emissions and reduce the threats presented by climate change. A collection of eleven states dotted across the eastern seaboard – Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia – are tackling climate change through their participation in the Regional Greenhouse Gas Initiative (RGGI). Pennsylvania and North Carolina are currently in the process of joining RGGI (see Figure 1). Established in 2009, RGGI is the first mandatory cap-and-trade program in the United States (RGGI, 2022).
Figure 1: Map of RGGI states
What is RGGI?
RGGI is designed to limit carbon dioxide (CO2) emissions from the energy sector and benefit the regional economy (Center for Climate and Energy Solutions, 2022). RGGI is structured as a typical ‘cap and trade’ program (see Figure 2). States establish an emissions budget that sets a limit, or ‘cap’, on the amount of CO2 that power plants are allowed to emit (Ho, 2021). States then distribute ‘allowances’ that permit large polluters to emit one ton of CO2 per allowance (MDE, 2022). Fossil-fuel-fired electric power generators with a capacity of 25 megawatts or more are required to hold allowances that are equal to their CO2 emissions (RGGI, 2022). These allowances are sold at regional quarterly auctions at a Minimum Reserve Price, which is the lowest price that allowances can be sold for at auction (RGGI, 2022). Establishing a Minimum Reserve Price helps ensure confidence in the market and certifies that major polluters in the power sector are paying their fair share to offset their carbon emissions. Each year, the number of allowances sold at auction is lowered, meaning that polluting power plants are forced to gradually reduce their emissions (Ho, 2021). The auction proceeds then go towards funding a range of state and local programs that center on integrating sources of renewable energy into the regional energy mix, improving energy efficiency, and spearheading other climate-focused initiatives (MDE, 2022).
Figure 2: The three stages of how RGGI works. First, setting a declining limit on carbon emission from power plants. Second, putting a price on carbon that is sold at auction. Third, investing money generated from auctions into community programs that help adapt to and/or mitigate the impacts of climate change.
The Benefits of RGGI
RGGI has already delivered a broad range of benefits to participating states including GHG emission reductions, increased revenue to fund climate-focused initiatives, and crucial health benefits. By 2030, RGGI’s eleven participatory states will have collectively reduced carbon emissions from the power sector by 30 percent (Virginia Department of Environmental Quality, 2022). Impressively, emissions in RGGI states have dropped over 50 percent since 2009, which is almost twice the national average (Sublette, 2022). Carbon emissions are expected to continue to decline in RGGI states, with the pollution cap anticipated to decrease by 3 percent each year through 2030 (Ho, 2021). RGGI has already generated a whopping $4.7 billion in revenue for participating states since the program’s inception (Hibbard et al., 2018).
Throughout all eleven states, the revenue generated from auctions has largely been invested back into local economies in myriad ways. Initiatives funded by auction revenue include clean energy programs, disaster risk preparedness, energy efficiency measures, weatherization of homes, and electricity bill subsidization for low-income populations (Ho, 2021).
A common criticism of RGGI is the increase in energy costs which is passed along to the consumer. The only states that have experienced significant price increases are Vermont and New Hampshire, which can be attributed to these states buying more power through long-term contracts, thus insulating the states from wholesale price volatility (Ceres, 2016). However, states’ use of the auction funds has largely ended up offsetting the short-term increase in consumer energy bills. In fact, consumer energy usage decreases in the long-term as a result of energy efficiency upgrades and transitions towards renewable energy sources (Hibbard et al., 2018). RGGI has saved electricity consumers around $314 million and electricity prices have declined by 2 percent in RGGI states since the program’s inception (Ceres, 2016).
RGGI has also created 45,000 job-years of work (equivalent to one year’s worth of full-time employment for 45,000 people) and infused $4 billion in economic value to the region (Ho, 2021). Of note, RGGI state economies have grown 31 percent faster than non-RGGI states (Ho, 2021). This is a remarkable accomplishment that supports the notion that polluting is not required to achieve economic growth, and, in fact, transitioning to renewables can bolster the economy while also supporting a more resilient future. In terms of health benefits, research shows that between 2009 and 2017, RGGI reduced childhood asthma, preterm births, cancer, heart attacks and autism because of particulate pollution reduction in the atmosphere, all of which is valued at $5.7 billion (Ho, 2021). The benefits of participating in RGGI are evident in the economic gains, decreased pollution and improvements in health that RGGI states continue to reap.
Virginia’s Participation in RGGI
The Commonwealth of Virginia joined RGGI at the beginning of 2021 and has since generated around $227 million through auctions (Virginia Department of Environmental Quality, 2022). Virginia’ General Assembly specified that 50 percent of the revenue generated by RGGI must go towards energy efficiency programs, with 45 percent dedicated to Virginia’s Community Flood Preparedness Fund, and the remaining 5 percent allocated to the Department of Environmental Quality for implementing climate change adaptation and mitigation projects (Sublette, 2022). Since joining RGGI, a surcharge of about 2 percent has been added to Virginian energy bills, totaling around $2.39 per month for residential consumers, or $1,554 per month for businesses (Commonwealth of Virginia, 2022). Dominion Energy, the primary electricity supplier for Virginia, anticipates that RGGI will cost ratepayers around $1 billion over the next four years. However, others argue that the money raised from auctions have already had a positive impact in Virginia from a net reduction in spending on energy due to increased energy efficiency (Sublette, 2022). In addition, Dominion Energy has begun to reduce its emissions by diversifying its energy generation mix with the company’s Coastal Virginia Offshore Wind project, the largest offshore wind project in the US, expected to power over half a million homes by 2026 (Dominion Energy, 2022).
Over the last year, Virginia has witnessed positive social and economic impacts from RGGI that have enabled the creation of robust climate change adaptation and mitigation solutions. Despite this progress, the Governor of Virginia Glenn Youngkin is fervently against remaining part of RGGI. Gov. Youngkin argues that “the benefits of RGGI have not materialized, while the costs have skyrocketed” and signed Executive Order No. 9 to remove the Commonwealth from RGGI (Commonwealth of Virginia, 2022). However, Gov. Youngkin does not hold the power to remove the state from RGGI via executive order and, as such, will have to pursue other legal avenues to roll back RGGI, which could be a lengthy process (Wilson, 2022). The Governor’s stance on RGGI could be attributed not just to the higher cost for consumers, but also the fact that higher electricity bills could dissuade businesses from setting up shop in Virginia. Whatever his reasons, it appears as though Virginia will remain a RGGI state for the time being.
Why are more states not joining RGGI?
Pennsylvania and North Carolina are set to join RGGI soon. This raises the questions of why states are experiencing pushback when proposing to join RGGI or not joining altogether. Joining RGGI has become a contentious issue in some states due to the program’s potential impact on the economy and “questionable environmental benefits” (Gleason, 2020). Those who oppose RGGI believe that joining the program will hurt the energy industry, drive up electricity prices, and fail to curb GHG emissions. Regarding the energy industry, some lawmakers argue that putting a price on carbon emissions will negatively impact coal communities through job loss (McDevitt, 2021). However, participation in RGGI can actually create green energy jobs and replace the ones lost by phasing out coal. In addition, the assertion that RGGI will not have a positive environmental impact because emissions will simply rise in other states is largely unfounded. Researchers at Penn State’s Center for Energy Law and Policy have indicated that even with a rise in emissions in other states, the drop in emissions as a result of RGGI within the state will positively impact the climate (Penn State, 2020). However, some lawmakers have argued that joining RGGI is unnecessary because their states are already doing enough to tackle climate change through passing various legislation (McDevitt, 2021). As such, the exact reasons as to why more states are not joining RGGI remains somewhat unclear.
Conclusion
The first program of its kind, RGGI has delivered significant emission reductions for eleven states on the east coast and has strengthened states’ abilities to respond to climate change. The funding generated from RGGI auctions has propelled the region into a state of preparedness to tackle the pressing threats presented by climate change. RGGI’s success is a promising example that other states can follow to help the country achieve its alignment with the Paris Agreement and ensure a sustainable and equitable future for all.
References
Center for Climate and Energy Solutions. (2022). Regional Greenhouse Gas Initiative. https://www.c2es.org/content/regional-greenhouse-gas-initiative-rggi/
Ceres (2016). The Regional Greenhouse Gas Initiative: A Fact Sheet.https://www.ceres.org/sites/default/files/Fact%20Sheets%20or%20misc%20files/RGGI%20Fact%20Sheet.pdf
Commonwealth of Virginia. (2022). Executive Order Number Nine: Protecting Ratepayers From the Rising Cost of Living Due to the Regional Greenhouse Gas Initiative. https://www.governor.virginia.gov/media/governorvirginiagov/governor-of-virginia/pdf/74—eo/74—eo/EO-9–RGGI.pdf
Dominion Energy. (2022). Coastal Virginia Offshore Wind. https://www.dominionenergy.com/projects-and-facilities/wind-power-facilities-and-projects/coastal-virginia-offshore-wind
Gleason, P. (2020, June 30). Pushback Against Two Cap & Trade Programs Follows Electoral Rejection Of Carbon Taxes. Forbes.
Hibbard, P.J., Tierney, S.F., Darling, P.G. and Cullinan, S. (2018). An Expanding Carbon Cap-And-Trade Regime? A Decade of Experience with RGGI Charts a Path Forward. The Electricity Journal, 31(5), 1-8.
Ho, B. (2021, July 14). The Regional Greenhouse Gas Initiative Is a Model for the Nation. Natural Resources Defense Council. https://www.nrdc.org/resources/regional-greenhouse-gas-initiative-model-nation
MDE. Maryland Department of the Environment. (2022). Regional Greenhouse Gas Initiative (RGGI) in Maryland. https://mde.maryland.gov/programs/air/climatechange/rggi/pages/index.aspx
Penn State Center for Energy Law and Policy. (2020). Prospects for Pennsylvania in the Regional Greenhouse Gas Initiative. https://celp.psu.edu/rggi/
RGGI. (2022). RGGI 101 Fact Sheet. https://www.rggi.org/sites/default/files/Uploads/Fact%20Sheets/RGGI_101_Factsheet.pdf
Sublette, S. (2022, February 5). The Regional Greenhouse Gas Initiative: Where the money comes from and where it goes. Richmond Times-Dispatch. https://richmond.com/news/state-and-regional/the-regional-greenhouse-gas-initiative-where-the-money-comes-from-and-where-it-goes/article_73c95e12-993a-5428-a7ab-a33d9913e05b.html
Virginia Department of Environmental Quality. (2022). Carbon Trading. https://www.deq.virginia.gov/air/greenhouse-gases/carbon-trading McDevitt, R. (2021, October 30). Where is RGGI now? Pennsylvania may join the emissions-reduction program soon, but obstacles remain. WESA: Pittsburgh’s NPR News Station.
Wilson, P. (2022, January 17). Youngkin Backs Off Plan to Use Executive Power to Remove Virginia from RGGI. Roanoke Times-Dispatch.
About the Author:
Anna Singh, B Corp Intern
Anna is a lifelong resident of Chevy Chase, Maryland. She graduated from the University of Edinburgh in 2021 with a degree in Sustainable Development and Geography. Anna is passionate about leveraging environmental, social and corporate governance strategies to help businesses become more sustainable. She hopes to use her role as the B Corp Intern to drive social and environmental change that will have a positive impact on her community.
