Economic Gains By Limiting Carbon Emissions

The nation’s first cap-and-trade program continues to generate economic benefits.

The United States' first multi-state cap-and-trade program, the Regional Greenhouse Gas Initiative (RGGI, called Reggie), was the first experiment in carbon reduction coupled with economic benefits. From 2012 to 2017, those benefits amounted to $1.4 billion.  A pioneer in the field of carbon reduction, RGGI continues to benefit the economy and boost employment, according to a new report by Analysis Group. The independent study is based on economic data from the past three years, tracking the impact of RGGI on the economy of the nine participating states.

What is RGGI program? 

The Regional Greenhouse Gas Initiative (RGGI) is the first mandatory market-based program in the United States to reduce greenhouse gas emissions. RGGI is a cooperative effort among the nine states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont, to cap and reduce CO2 emissions from the power sector. Under RGGI, each year the nine RGGI states offer a declining number of CO2 emission allowances for sale through regional auctions. Owners of fossil-fired power plants buy those CO2 allowances, which authorizes them to emit specific amounts of CO2, or find ways to clean up carbon emissions. The RGGI member states revised the program design in 2014, reducing the regional carbon emissions cap by 45 percent, with a further decrease of 2.5 percent in each following year. RGGI is the nation’s first multi-state CO2 emissions control program.

Report Co-author and Principal - Analysis Group, Paul Hibbard says, "During this period, the emissions cap for power plants in the region was lowered, and the prices power generators had to pay for emissions rose. Some observers had wondered whether tightening emissions targets would choke off the modest but consistent stream of economic benefits the region has seen since RGGI went into effect in 2009. But that didn’t happen. Economic benefits and job creation continued, at magnitudes similar to what we’ve seen in previous study periods....We hope this report will help inform decision making on the part of state regulators, policy makers, utilities, and other stakeholders.

Previous reports from the Analysis Group for 2009–2014 have also found positive impacts from the RGGI program. Cumulatively, over the past decade, RGGI has delivered! How?

  • $1.6 billion in 2012 and $1.3 billion In 2015 (adjusted for current values) and now in 2017, $1.4 billion in net economic value — a total of more than $4 billion in economic benefits.
  • A 50% drop in CO2 emissions from power plants. 
  • Over 44,000 new job-years for participating states.

The economic benefits of the RGGI program remained comparable despite higher CO2 allowance prices and lower allowance volumes experienced in the 2015-2017 compliance period. Total auction proceeds for the three-year period were only slightly lower than in the previous two compliance periods, reflecting the offsetting effects of the increase in allowance prices and lower allowance volumes.

How was this economic growth achieved?

Emissions reductions have come about due to many factors, including the implementation of RGGI. Consumers and the broader economy benefit from states spending RGGI auction proceeds on energy efficiency measures, community-based renewable power projects, credits on customers’ bills, bill-paying assistance for low-income ratepayers, greenhouse gas reduction measures, education and job training programs, and other programs. Specifically, the benefits came in the form of 

RGGI is boosting employment across the region and in each state, supporting over 14,500 new job-years. Job-years related to RGGI activities include performing efficiency audits, selling products related to energy efficiency and renewable energy, installing energy-efficient appliances and systems, training people on conservation, and working on other energy issues. This increase in employment comes on top of the nearly 14,200 job-years created from RGGI’s implementation over the years 2012-2014, and more than 16,000 job-years RGGI created from implementation during 2009-2011.

Over the past three years, RGGI has helped to lower the total amount of dollars member states send outside their region in the form of payments for fossil fuels by over $1 billion. RGGI has lowered states’ total fossil-fired power production and their consumers’ use of natural gas and oil for heating.

Energy consumers overall – households, businesses, government users, and others – enjoy a net gain of over $220 million, as their overall energy bills drop over time. Local reinvestment of RGGI dollars in energy efficiency and renewable energy programs tends to offset the impact of increased wholesale electricity prices resulting from the cost of RGGI allowances. Consumers experiencing energy savings tend to invest those extra dollars back into the local economy, serving to further boost local and regional economies.

As a group, power plant owners experience net revenue losses, although owners of nuclear and renewable energy power plants have seen slight revenue gains.While power plant owners in total have recovered the costs of buying CO2 allowances in the short run, they experience lower output and revenues in the long run. Nuclear and renewable owners do not have to buy CO2 allowances and receive the benefit of slightly higher wholesale market prices, netting them slightly higher revenues than they would have in the absence of the RGGI program.  

Besides examining and quantifying the economic benefits from each of the above streams, the report also tracks these RGGI-related dollars as they leave the pockets of power companies that buy CO2 allowances, show up in electricity prices, make their way into state accounts, and then roll out into the economy (including in ways that lower customers’ electricity bills). These dollar flows have a positive net effect on the region’s economy. Over nine years of RGGI operations, a total of $2.8 billion in auction proceeds has flowed to member states. Each state decides independently how to spend this money, adjusting spending plans over time to meet shifting objectives and the fast-changing realities of the energy market. The states have sent most of the money raised back into the economy by funding energy-efficiency programs, renewable-power projects, clean-energy career jobs training, and other clean-energy programs.

The study also presents details on CO2 allowance prices, observable CO2 auction results (in terms of prices and quantities sold), dollars distributed from the auction proceeds to the RGGI states, actual state government decisions about how to spend the allowance proceeds, measurable reductions in energy use from energy-efficiency programs funded by RGGI dollars, traceable impacts of such expenditures on prices within the power sector, and concrete value added to the economy over the forecast period (to 2027). 

"RGGI was not designed to be an economic development program. It was designed to cut greenhouse gas emissions, which it is doing successfully. But the point of our work is to chart any economic side effects. The data continue to show that cutting carbon emissions can be a net positive for the economy", said report co-author Susan F. Tierney, a Senior Advisor with Analysis Group

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About Analysis Group:

Analysis Group is one of the largest economics consulting firms, with more than 850 professionals across 14 offices in North America, Europe, and Asia. Since 1981, we have provided expertise in economics, finance, health care analytics, and strategy to top law firms, Fortune Global 500 companies, and government agencies worldwide.