InsideSources

The Analysis Group just released their review of the effects of the Regional Greenhouse Gas Initiative (RGGI), and they give it an A+.  They claim greenhouse gas emissions are falling, the state economies are growing, and renewable energy is on the rise.  RGGI must be working, right?

Only if you grade on a curve.  When you check the math, you’ll find that RGGI has no impact on emissions, has had minimal impact on improving energy efficiency, and done very little to increase wind and solar power generation.

What RGGI has done is put upward pressure on electricity rates which, in turn, has driven energy intensive businesses out of the RGGI region—along with the good-paying jobs those businesses supply.  In New Hampshire, for example, the loss of these high-wage jobs has reduced real medium household income by almost $2,000 a year, while increasing electric rates.

How can the facts be so far from the Analysis Group’s reporting? Let’s check their assumptions.

RGGI works by forcing power plants to pay for emission allowances in quarterly auctions.  The one point we all agree on is the cost of those allowances gets passed on to electric distributors and then onto ratepayers.  Between 2015 and 2017, those auctions collected about $900 million dollars—once again, all from the pockets of customers.

In their report, the Analysis Group (a paid consultant for RGGI, Inc.) assumes $800 million of that money is invested in local economies where it is leveraged by indirect and induced affects into $1.4 billion of economic impact.  But they’re using gross figures, not net.  They don’t account for the economic impact of that $800 million if it had been saved or spent by the electric customers themselves.  If the $800 million had been dropped into the economy from the sky, their analysis would be accurate. But it didn’t. The money came directly from local businesses and consumers in RGGI states who would have spent, saved or invested it themselves, thereby adding to economic growth.

That net number, alleged RGGI growth minus the loss of economic activity from ratepayers and customers, is nowhere to be found.

The other assumption is the RGGI invested revenue more than offsets the costs leading to electric bill savings, thus justifying the $1.4 billion impact estimate.  They assume energy efficiency investments should lead to lower demand, and lower demand should result in lower electric prices.

The problem with this assumption is lower electric demand can actually lead to lower power plant operating efficiencies.  For example, coal-fired power plants pay a higher RGGI allowance because they release about twice as much carbon dioxide as natural gas for each unit of electricity produced. These power plants were designed to run almost all the time.  An analysis of power plants in two RGGI states shows operating hours fall as the plants are less competitive, the plants stop and start more often, and efficiency has fallen 16 percent The result is higher costs and emissions.

Furthermore, energy efficiency doesn’t show up in a state-by-state analysis of energy intensity.  Energy Intensity measures the amount of electricity needed to support a dollar’s worth of economic production.  Between 2007 and 2015, energy intensity only improved 9.6 percent in RGGI states. In comparable states outside the RGGI agreement but with similar energy policies, it improved by 11.5 percent.  Electric demand has fallen in RGGI states, but the reduction can be traced to lower industrial demand from companies that left the region, taking jobs and $30 billion of business revenue with them.  Similarly, the comparison states created twice the amount of new in-state wind and solar generation as the RGGI states.

Even if you assume that RGGI spending is the engine behind improved energy efficiency or expanded renewables, there’s still a math problem: Relatively little of the RGGI tax revenue has been spent on energy.   For example, the New Hampshire program spends only 25 percent of revenue on energy efficiency with the rest given as electric customer rebates.  Connecticut and New York have re-directed large sums to their general funds, and Delaware simply hasn’t spent most of the money.   It’s hard to credit progress to dollars still sitting in the bank.

The Analysis Group also stated the RGGI states saved a billion dollars in fuel purchases thanks to lower energy generation.  Unfortunately, while these states generated less energy, that doesn’t mean they used less.  Instead, their imports of out-of-region electricity doubled from 7 percent to 14 percent between 2007 and 2015.  And less energy generated also means less energy to sell. As a result, New Hampshire has lost about half a billion dollars of electricity exports to other New England states. That means lost revenue and lost jobs.

When I began my independent analysis, “A Review of the Regional Greenhouse Initiative’, published in the peer reviewed winter 2018 Cato Journal, I expected to find some emissions savings for RGGI states as compared to other, comparable states.  I expected the debate would be over how big those savings were and whether they would be worth the price of distorting the energy market.

Instead, I found essentially no emissions savings can be attributed to RGGI.

The RGGI emission reductions were duplicated in the comparison states—and across the US.  Emissions cuts have come primarily from lower coal use.  I found 70 percent of the emission savings came from coal’s inability to compete with lower cost natural gas.  The other 30 percent can be attributed to US Environmental Protection Agency regulations that required expensive pollution controls be added to coal-fired power plants.  It just wasn’t worth investing in older, smaller power plants and, as a result, emissions fell.

The RGGI program is being extended from 2020 to 2030 with another 30 percent emission reduction goal, and up to six times higher allowance cost planned.  New Hampshire already met the 2030 emissions goal in 2016.  The RGGI program hurts New Hampshire’s economy with lost business, lost high paying jobs, lost income, and lost tax revenue.  After a decade there is no apparent environmental benefit from RGGI, and there has been a minimal impact on energy efficiency, and wind power.

New Hampshire’s elected officials should consider the impact on local businesses and residents, already burdened by the 3rd highest energy costs in the US, and ask themselves if it’s time to issue RGGI a failing grade and get out.

President Trump’s decision to pull the United States out of the Paris Climate Accord and to repeal several Obama-era executive orders aimed at reducing American carbon emissions made the cost of clean energy a central point of discussion. The issue wasn’t just the price per kilowatt hour for electricity generation. Climate change supporters argued that without bold action today, burning fossil fuels could create irreparable harm to the planet and humanity in the future. This “social cost” of carbon emissions was a crucial part of the case for clean energy and efficiency standards. A new academic study, however, finds that the social cost of burning carbon is far less than the private benefit it creates.

Richard Tol, a professor of economics at the University of Sussex, is one of the world’s leading environmental economists. In a new paper, he finds that the private benefits of carbon (the heat generated, food cooked, and transportation provided) far outweigh the aggregate social costs of burning fossil fuels.

“The private benefit of carbon is large and, in most cases, much larger than the social cost of carbon. But while the social cost of carbon is tied to carbon dioxide emissions and their impact on the climate, the private benefit of carbon is not tied to fossil fuels,” Tol writes.

“The private benefits of carbon are, really, the benefits of abundant and reliable energy or rather, the benefits of the services provided by energy, such as warm homes, cooked food, travel and transport, information and communication, and so on.”

According to Tol’s economic analysis, each tonne of CO2 emissions creates $411 of private benefits. Meanwhile, according to President Obama’s Interagency Working Group, the social cost of carbon is around $40 per ton.

“The social cost of carbon is the damage done by emitting an additional tonne of carbon dioxide,” Tol writes, continuing on to describe how, although the benefits of carbon consumption occur in the present, harms occur in the aggregate.

Tol analyzed data from 66 countries, taking into account energy production methods ranging from direct methanol fuel cells to burning dried cow dung. Each method of generating energy had its own market and carbon prices. Tol admits that complete data for world-wide fuel consumption does not exist. However, he believes that much of the missing data refers to fuel burned for cooking and residential heating, which would be too small to have much affect on the overall analysis.

The social cost of carbon was central to the Obama administration’s Clean Power Plan and has been used by state governments to draft energy policy. When calculating a social cost of carbon in order to gauge the plan’s economic impact, researchers drew on Tol’s work, as well as studies by William Nordhaus at Yale University and Chris Hope at Cambridge University, arriving at the $37 figure. This was one of the highest possible outcomes. Alternate studies placed the social cost of carbon as low as $11 per ton.

According to the Cost of Carbon project, a joint program from the Environmental Defense Fund, the Natural Resources Defense Council, and the Institute for Policy Integrity, the social cost of carbon is a necessary data point to defend pro-alternative energy policies.

“Decades of economic research have demonstrated that the ‘cost-free’ behavior of using fossil fuels and emitting carbon dioxide has led to an over-reliance on fossil fuels,” the project writes. “The social cost of carbon pollution removes that bias by accounting for the costs of pollution.”

However, the cost of carbon provides only half of the picture. Tol’s study helps to put the cost into perspective by comparing it to the economic benefits that burning fossil fuels creates.

For Tol, the central issue is not the political or economic wisdom of a carbon tax, but rather the value of energy itself, which allows for improvement in standards of living around the globe. He has studied the social cost of carbon for more than 10 years, updating his analysis to reflect both changes in economic estimates of the impact of climate change.

In the introduction of a 2008 meta-analysis of more than 200 studies of the social cost of carbon, Tor acknowledged that there were limits to the utility of purely economic analysis, but maintained that consideration of the economic effects was necessary.

“Few would argue that climate policy should be set by cost-benefit analysis alone,” he wrote, “but most economists would feel queasy if climate policy would drift too far from its optimum— although analysts in other disciplines are less compelled by the branch of utilitarianism that is common in economics.”

Currently the Trump administration is reconsidering the social cost of carbon formula.

“The scandal of the EPA’s calculation is that the conventional discount rates that the government (and private industry) typically uses for such forward-looking calculations all came in with climate cost numbers so low that the Clean Power Plan couldn’t be justified,” says Steven Hayward, a scholar of American public policy who has researched the science behind climate change.

Given Tol’s latest study, these calculations may be up for reconsideration.