Roger Kayaza
I recently submitted a comment based on my analysis of the New York State Research and Development Agency's investment in Regional Greenhouse Gas Initiative (RGGI) auction proceeds, and my findings may be of interest to many. Limited investment schemes like RGGI are often touted as “killing two birds with one stone”. “It also places limits ('caps') on the tons of pollutants that companies can emit, while requiring them to pay per ton of pollutants to fund projects that help the jurisdiction move away from polluting energy sources – 'investments.'” Advocate Authors praised RGGI as a successful model for a cap-and-invest scheme that cited observed emission reductions and the amount of funds raised. Remembering past results does not guarantee that future performance will always be good. In this case, however, things are even worse, and closer inspection shows that past results have not been as successful as widely believed.
background
I will not provide detailed support for the numbers in this article, but at the end I provide sources for the information provided and links to comments submitted for several proceedings in New York. The RGGI page and My RGGI page contain background information about the program itself.
Supporters claim there are three reasons for RGGI's success. The program has successfully raised funds for transition efforts as New York's share of proceeds has exceeded $2 billion since 2009. Since RGGI was implemented in 2000, New York's electricity curtailments have dropped by nearly 50%. Finally, they claim that the funding promotes effective investment in the energy transition. My analysis shows that RGGI is only 1-for-3. Additionally, there are unacknowledged risks to RGGI and future cap and dividend plans.
Success – RGGI raises funds
Fifteen years ago, when RGGI was launched, no U.S. jurisdiction had a cap-and-trade program that relied on auctions to allocate allowances. RGGI successfully built the infrastructure to auction quotas, track procurement and ensure compliance. Currently, RGGI's cumulative revenue across all states exceeds $8.6 billion, with New York State alone's cumulative revenue exceeding $2 billion. It's an unquestionable success.
Failure – RGGI impacts emissions
However, the implicit claim that RGGI is related to observed emission reductions is false. In a classic bait-and-switch deception, proponents accurately point out that electric utility emissions have dropped 50 percent since 2000 but fail to acknowledge RGGI's role. First, RGGI didn’t start until 2009. I believe the fuel price differential for natural gas is much greater than the additional cost of the RGGI allowance and thus is the main driver of the observed reductions.
Figure 1: Annual CO2 emissions from generating units in New York State (by fuel type)
Emissions come from EPA Clean Air Markets Program data
Failure – Effective RGGI Investing
There are also questions about the effectiveness of RGGI investments for the net-zero transition. The observed cost-effectiveness of abatement is poor.
The NYSERDA Program Funded Status Report estimates emissions savings from investments in its programs. According to the latest report, by the end of 2023, NYSERDA plans to invest a total of 1,405,513 tons of cumulative annual emissions reductions that directly or indirectly affect emissions from power generation sources. This means that without the NYSERDA program investments, emissions from New York's RGGI sources would have increased by only 3%. According to the funding status report, the cumulative combined cost of these projects is $801 million, which represents a cost reduction of $818 per ton.
The semiannual status report through December 2023 describes NYSERDA’s funding priorities for auction proceeds: “The State invests RGGI proceeds to support comprehensive strategies that best achieve RGGI CO2 reduction goals,” and goes on to say: “These strategies are designed to In the latest report, the total amount of emission reductions was 2,084,317 tons and the cumulative cost was US$1.15 billion, which means the cost of each ton reduced. for $552.
My recent work has focused on auction proceeds investing in New York. Lest you think New York's dismal emissions reductions are an outlier, I evaluated investments and savings in all RGGI states last summer in the 2022 Investment Income Report . Table 1 shows that the New York estimates are consistent.
Table 1: Summary of RGGI investments in categories providing emission reductions
These results indicate that the estimated cost per ton reduction is not cost effective. The New York State Carbon Value Guide “establishes a carbon value that can be used by state entities to aid decision-making and as a tool for states to demonstrate the global social value of actions to reduce greenhouse gas emissions.” The social cost of carbon dioxide is discounted at 3% in 2024 The discount rate is calculated as $57.25, the central value is calculated as $132.09 at a discount rate of 2%, and the discount rate is calculated as $430.75 at a discount rate of 1%. The observed cost-effectiveness of NYSERDA's RGGI auction proceeds of $552 per ton is much higher than the estimated social cost of carbon, so NYSERDA investments are not cost-effective when using this metric. RGGI effectiveness estimates are similar.
Risk – RGGI Compliance
There is another indicator of program success – compliance with emissions caps. NYSERDA has not recognized RGGI as having compliance authority and is risking the ability of affected sources to comply with the cap. NYSERDA does not prioritize programs that affect electricity sector emissions, either directly by funding the development of zero-emission resources that replace electricity generation or indirectly by funding energy efficiency and conservation programs that reduce the amount of electricity needed to generate electricity. Historically, one-third of investment earnings have been spent on projects to increase emissions from the power sector through increased investment in projects such as electric vehicle infrastructure. The latest operating plan recommends investing only 22% in projects that directly, indirectly or have the potential to reduce emissions from sources affected by RGGI. Plans to increase load may increase emissions from RGGI sources, accounting for 37% of the total investment. Projects that do not impact emissions will receive 29% revenue funding and an additional 8% for administrative costs.
Figure 1 illustrates the consequences of unidentified NYSERDA program funding priorities. Future emissions reductions must come from effective investment in power generation unit emissions reduction programs. If investment is insufficient, compliance issues will arise because the only way for affected sources to comply with RGGI is to reduce operations or close. The risk is man-made energy shortages affecting power system reliability. I don't think this is appropriate. This is a perfect example of transitional policies doing more harm than good.
discuss
Danny Callenward and David Victor’s book Making Climate Policy Work describes an aspect of the cap-and-invest program that no advocate acknowledges. They point out that the level of spending required to implement the net-zero transition significantly exceeds “the funds that can be readily allocated from market mechanisms”. The problem is exacerbated by the observed inefficiencies in cost per ton reduction.
In a rational world, Karen Ward and Victor's conclusions and the observed poor performance would prompt New York to make investments in electricity system emissions reductions a priority for RGGI revenue. The situation is made worse because New York’s net-zero transition plan is effectively a Green New Deal, which includes a requirement that 35% of all benefits (out of a target of 40%) be provided directly to disadvantaged communities. If this were the only distraction, we could overcome the need for emissions reductions in the power industry. However, the latest NYSERDA operating plan recommends allocating more funds to projects that do not impact emissions (29%) rather than allocating more funds to projects that impact emissions from the power industry (22%). Plans that do not affect emissions include $18.5 million for “Climate Action Consumer Awareness and Education,” which is designed to fund “increased awareness and understanding of the urgent need for and benefits of climate action in New York State.” In other words, publicity convinced people that they should care about problems New York couldn't solve on its own and gratefully turn to energy sources that were more expensive, less reliable, and had a greater environmental impact. New York does not exist in a rational world.
in conclusion
Anyone who thinks that a market-based scheme to limit greenhouse gas emissions and invest through thinly veiled taxation will work as advertised will be disappointed. The RGGI model has successfully raised funds. This is the easy part. The reductions observed so far are not the result of RGGI. The effectiveness of investing auction proceeds is poor and there is no reason to expect that this situation will change enough to provide adequate future achievable emission reduction targets. Furthermore, compliance obligations create significant potential reliability risks if the program sets a compliance reduction trajectory based on political goals rather than a rational assessment of what is achievable.
I don't think this approach will end well.
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document
Documents are available in my comments submitted to NYSERDA on its 2025 Regional Greenhouse Gas Initiative (RGGI) Operating Plan Amendments and in my public statements and documents submitted to the New York Assembly Energy Committee as part of the NYSERDA Spending and Plans Public Hearing part of the review. The data provided can be found in a spreadsheet.
Related blog posts from pragmatic environmentalists in New York
Comments on RGGI's performance and impact on NYCI summarize the submissions and other articles.
The New York NYSERDA RGGI Funding Status Report Through 2023 describes observed emission reduction trends.
NYSERDA RGGI Funding Status Report Impact Status results describe data from the semiannual status report as of December 2023, including the cumulative annual cost of the investment program and the annual tons of carbon dioxide equivalent (CO2e) saved by the investment.
Impact of NYSERDA RGGI Operating Plan Investments describes data from the 2025 draft amendment to the RGGI Operating Plan, including proposed funding for future NYSERDA programs.
Roger Caiazza blogs about energy and environmental issues in New York at the Pragmatic Environmentalist of New York. This represents his opinion and not that of his previous employer or any other organization with which he is associated.
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