Carbon markets are among the best ways to decarbonize our economy while dedicating investment toward clean energy – from California and Quebec to the Northeast United States, pricing carbon is cleaning our air and powering a clean economic shift.
While we know how much is being raised through carbon allowance auctions, exactly how the money’s spent has been a bit vague – until now. The Regional Greenhouse Gas Initiative (RGGI) carbon market, which covers nine Northeast US states, has just published an accounting of how and where cap-and-trade revenue through 2013 have been invested.
RGGI raised a cool $1.398 billion dollars in 22 auctions between September 2008 and December 2013 and invested $1.016 billion in renewables, energy efficiency, consumer utility bill assistance, and greenhouse gas abatement. But more importantly, RGGI funds will generate more than $2.9 billion in lifetime energy savings – a nearly 3-to-1 return on investment.
Rising Carbon Allowance Prices, Rising RGGI Revenue
Under the RGGI cap-and-trade system, member states agree to an overall limit on power plant emissions (the “cap”) and issue a limited amount of carbon allowances for pollution above that limit. Allowances are auctioned off quarterly, with covered entities purchasing permits to emit one ton of carbon dioxide (the “trade”).
RGGI allowance prices have ranged from $1.86 to $5.41 per ton, and have generated over $2 billion in total proceeds through March 2015. It’s important to note RGGI passed the $2 billion milestone five years early, and allowance prices have risen through nimble system design reducing available allowances as overall emissions have fallen over time.
Astute readers may notice a discrepancy between cumulative RGGI proceeds and investments. The roughly $450 million difference is an output of funds committed to future programs beyond 2013 ($288 million) proceeds earned by New Jersey before Governor Chris Christie removed it from the system in 2011 ($113 million), transfers to state general funds ($93 million), and fiscal reporting adjustments ($56 million).
Cutting Emissions to Fund Clean Energy Investments
One of RGGI’s signature features is empowering each state to choose the most economical way of reducing emissions, and it’s working – member states have cut power plant carbon emissions over 40% since 2005 while the regional economy has grown 8%
Member states also allocate their portions of the proceeds, meaning market forces in each state dictate which technologies are the best decarbonization option. So far, energy efficiency has been the biggest winner, netting 62% of cumulative RGGI investments through 2013, and the programs funded by these investments are expected to return more than $2.3 billion in lifetime energy bill savings to 1.2 million households and 17,550 businesses. Little surprise Massachusetts is consistently ranked first nationally in the ACEEE State Energy Efficiency Scorecard, with five additional RGGI member states in the top ten.
Clean energy projects and greenhouse gas abatement projects secured 17% of cumulative investments, and are expected to generate more than $240 million in lifetime energy bill savings to 7,000 households and 250 businesses, while preventing 310,000 tons of carbon emissions. By one account, RGGI helped drive 800 megawatts of new renewable energy capacity in 2013 alone.
Finally, direct bill assistance, designed to offset consumer cost increases from utility decarbonization efforts, represented 15% of cumulative investments. These power bill rebates have returned more than $140 million to over 2.4 million households. I can’t personally attest to what it feels like to see one of these rebates in RGGI, but I recently received my first “climate credit” from California’s cap-and-trade program, and it made a significant impression.
— Silvio Marcacci (@Silvio_Marcacci) April 18, 2015
Cumulatively, RGGI estimates system investments so far will prevent more than 48.7 million BTUs of fossil fuels from being burned, reduce electricity demand by 11.5 million megawatt-hours, and avoid 10 million tons of carbon emissions. Talk about a lasting legacy.
RGGI Carbon Market Isn’t Perfect, But It’s Pretty Darn Good
To be clear, RGGI’s member states aren’t fully maximizing the clean energy and emissions reduction potential of system proceeds and investments. The $93 million in transfers to state general funds does undercut overall impact, especially considering New York State just shifted $41 million from climate mitigation programs into its 2015 budget.
But RGGI’s nimble structure is drawing accolades from other states and regional grid operators as a potential route to reducing emissions under EPA’s Clean Power Plan, and the rapidly expanding California-Quebec carbon market has made overtures toward a larger system linkage.
Two of the biggest criticisms of carbon markets have been their potential to spike consumer power prices while reducing the transparency of revenue flow. For now, at least, RGGI is on the record disproving both claims.