RGGI Proves that Carbon Reduction Brings Economic and Environmental Benefits

Photo credit: Dennis Schroeder, NREL

This is an interesting week. Today the D.C. District Court of Appeals is hearing oral arguments on challenges to the Environmental Protection Agency’s Clean Power Plan (CPP), and earlier this week the participating states of the Regional Greenhouse Gas Initiative (RGGI) released their annual report tracking the cumulative investments of auction proceeds.

RGGI is the nation’s first multi-state, market-based program to reduce greenhouse gas emissions from the power sector in nine participating states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. Through RGGI, states are allocated tradable allowances equal to 1 short ton of CO2 each, to be distributed either by auction (primarily) or direct allocation to power plants. Proceeds from auctioned allowances are then used by participating states to invest in energy efficiency, clean and renewable energy, direct bill assistance, and greenhouse gas abatement, generating savings in energy, dollars and CO2 emissions.

Why is this so interesting? Because RGGI’s proven success as a market-based program also demonstrates that a mass-based allowance trading program, as allowed for in the CPP, can reduce carbon from the power plant sector, and provide environmental and economic benefit to states at the same time. Further, the RGGI experience demonstrates that the more states focus on energy efficiency as a compliance mechanism, the more benefits inure to residents and businesses.

 As of 2014, RGGI has invested $1.37 billion in proceeds to improve the energy future of the region, projecting a return of $4.67 billion in lifetime energy bill savings: that’s a 240 percent return on investment! In addition, these investments are projected to save 76.1 million MMBtu of fossil fuel energy and 20.6 million MWh of electricity during their lifetime, avoiding 15.4 million short tons of CO2 emissions.

We at the Alliance to Save Energy are excited to see energy efficiency playing such a significant role in the success of the RGGI program. The report states that efficiency represents the largest portion of cumulative investments (58 percent) and lifetime energy bill savings (77 percent). This means that for every dollar invested in energy efficiency in the RGGI region, $4.55 is returned to citizens in bill savings. The impact of these energy efficiency investments is real: the $3.62 billion in energy bill savings has directly benefited 960,000 households and 20,800 businesses (read real success stories here). And by the way, it is also expected to avoid 12.9 million short tons of CO2 emissions over its lifetime, positively impacting the lives of more than just those in participating states. 

As the D.C. District Court of Appeals hears oral arguments today, the accomplishments of RGGI ring loud and clear showing the power of energy efficiency programs that can fit into a CPP framework.  The RGGI approach creates a market that drives long-term investments in energy efficiency and other clean energy resources, by allowing market forces to determine the most cost-effective ways to reduce CO2 emissions in the power sector.  As a result, RGGI states have set themselves up with a successful, cost-effective mass-based approach that can be built upon to meet and exceed the goals of CPP, while also providing a proven example for other states. Nice going.

Kelly Speakes-Backman is Senior Vice President of Policy and Research for the Alliance to Save Energy, and former Chair of the RGGI Board of Directors.