Economic Impacts of RGGI: Following the Dollars

Economic Impacts of RGGI: Following the Dollars

Paul J. HibbardThe Economic Impacts of the Regional Greenhouse Gas Initiative on the Ten Northeast and Mid-Atlantic States

Raab Roundtable – February 2012

Raab Roundtable

February 17, 2012

Study of the Economic Impacts of RGGIFoundation- Funded Study (11-2011): Only requirement from the funders:

independent, with full editorial control by Analysis Group team

Team: Paul Hibbard, Sue Tierney, Andrea Okie, Pavel Darling

Electricity Journal Article (12-2011)

Technical Advisory Group David Conover, Sr. VP, Bipartisan Policy Center Richard Corey, Chief, Stat Source Div, CARB Nathan Hultman, Director, Environmental Policy

Program, School of Public Policy, University of MD Brian Jones, Sr. VP, M.J. Bradley & Associates John “Skip” Laitner, Director, Economic and

Social Analysis, ACEEE Michelle Manion, Climate & Energy Team Leader,

NESCAUM Brian Murray, Director for Economic Analysis,

Nicholas Institute, Duke University Karen Palmer, Senior Fellow, RFF Eric Svenson, Sr. VP, Policy and Environment,

Health and Safety, PSEG Alexander “Sandy” Taft, Director, U.S. Climate

Change Policy, National Grid

Raab Roundtable

February 17, 2012

What the study is… Economic study

…of actual revenues, actual programs, actual impacts

Following the money …through the electric sector

…and through the macro economy

Measuring results

What the study is not… Review of carbon

reduction benefits Review of environmental

impacts Evaluation of need for a

carbon control program Forecast of future

program participation, effectiveness, results

Assessment of appropriateness of cap level

Analysis of carbon market

Raab Roundtable

February 17, 2012

Bottom line results: Net positive economic impacts for:

the 10 RGGI states together, and for each state participating in RGGI

Across the region, the initial $0.9 billion in CO2 allowance auction proceeds translates to $1.6 billion in net economic value added

Economic value results from the various ways states spent auction proceeds: Biggest economic bang for buck: energy efficiency program support Economic value also created by other ways money recirculates in local

economies (e.g., customer bill rebates, general fund contributions)

Raab Roundtable

February 17, 2012

RGGI Proceeds Received by

States

Money Actually Allocated to

Programs

Money Mandated to

Programs

Money Released to Programs

Initial Impact of Money Spent

Ongoing Impact of Money Spent

RGGI Auctions Collect Money

Study Approach: Following the Money….

• Different states• Different programs• Different agencies• Different tracking methods• Different assumptions

Dollar Flows from RGGI Auction Proceeds through State Spending Impacts

Impacts (+ and -) in electric sector and larger economy during first three years of RGGI (2009-2011)

Impacts in electric sector and larger economy (2009-2021)

$912 million over 3 years

Raab Roundtable

February 17, 2012

Various Other Forms of Program Funding(Education, Direct

Bill Assistance, Program Admin, etc)

RGGI Auctions

Purchases of CO2 Allowances by Fossil-

Fuel Generators

Quarterly auction cycles

Fossil Fuel Generators

Increase Market Bids to Reflect

CO2 Costs

Auction Proceeds Spent by RGGI States

Dispatch Order of Changes for Some Power

Plants

Lower Consumer

Demand for Electricity

$ Electricity Price Effects $Decreased Consumer Demand ↓

Increased Generator Costs ↑Changing Dispatch Order ↑↓

Energy Efficiency and

Renewable Project Funding

Macro-economic impacts:

Direct effects of RGGI program

spending, consumer gains,

and producer loss

Indirect and induced effects

of multiplier effects of gains

and losses

Net Revenue Loss for Generators

ELECTRIC SYSTEM EFFECTS

MACROECONOMIC EFFECTS

ConsumersPower Plant Owners

Bill Reductions for Consumers

Run the $ Through the Power System and the Economy…G

E M

APS

IMPLA

NFlow of Dataand Modeling

Outcomes

Raab Roundtable

February 17, 2012

Auction and Direct Sales Proceeds

-

100

200

300

400

500

600

700

800

900

1,000

2009 2010 2011 Total

RGGI

Pro

ceed

s (m

illio

ns o

f $)

Vermont

Rhode Island

Delaware

Maine

New Hampshire

Connecticut

New Jersey

Massachusett s

Maryland

New York

All RGGI States

From left to right:

Source: RGGI Inc.Notes: Figures include Auctions 1-13 and direct sales proceeds for New Jersey (2009) and Connecticut (2009/2010).

Auction proceeds from Auctions 1 and 2 are reflected in the 2009 values.

$912 MDownward trend in auction proceeds from 2009-2011 results from:- Fewer allowances sold over time- Lower allowance prices over time

Raab Roundtable

February 17, 2012

Use of RGGI auction proceeds ($912 million)across the 10 states and in the 3 electric regions

Source: Individual state reports and interviews.Note: Certain grant programs may include multiple components,and are categorized in the figure above based on the largest share of spending.

27%

13%

11%

1%

41%

7%

Figure 6Summary of RGGI Proceed Spending

RGGI States in PJM

General Fund/State Government Funding EE and other Utility Programs and Audits & BenchmarkingRenewable Investment Education & Outreach and Job TrainingDirect Bill Assistance GHG Programs and Program Administration

27%

13%

11%

1%

41%

7%


RGGI States in PJM


10 RGGI states 6 New England States

New York (NYISO) DE, MD, NJ (PJM)

Raab Roundtable

February 17, 2012

Overall economic impacts – 10 states

$1.6 billion – economic value added in the region (NPV*)$0.9 billion – auction proceeds (mid-2008 through Q3 2011) $1.1 billion – consumer savings (electricity customers) (NPV*)$0.17 billion – consumer savings (natural gas & oil heat customers) (NPV*)$1.6 billion – lower revenues to power plant owners (NPV*)$0.77 billion – fewer dollars spent on out-of-region fossil fuel (NPV*)

16,000 jobs – jobs created0.7 percent – average electricity bill increases during 3-year RGGI

period [with savings over time given energy efficiency implemented with RGGI funds]

* Using a 3% social discount rate

Raab Roundtable

February 17, 2012

Value Added1 (millions of $) Employment2

Connecticut 189$ 1,309 Maine 92 918 Massachusetts 498 3,791 New Hampshire 17 458 Rhode Island 69 567 Vermont 22 195 New England Subtotal 888$ 7,237

New York 326$ 4,620 New York Subtotal 326$ 4,620

Delaware 63$ 535 Maryland 127 1,370 New Jersey 151 1,772 RGGI States in PJM Subtotal 341$ 3,676

Regional Impact3 57$ 601

Grand Total 1,612$ 16,135

Notes:

[2] Employment represents job-years as outputted from IMPLAN.

[4] Results are discounted to 2011 dollars using a 3% social discount rate.

[3] Regional Impact reflects the indirect and induced impacts resulting within the RGGI region as a result of state dollar impacts.

[1] Value Added reflects the actual economic value added to the state and regional economies, and therefore does not include the costs of goods purchased from or manufactured outside of the state or region.

Total Economic Impact – Value Added and Job-Years

Raab Roundtable

February 17, 2012

27%

13%

11%

1%

41%

7%


RGGI States in PJM


27%

13%

11%

1%

41%

7%


RGGI States in PJM


New England

New York

0%

10%

20%

30%

40%

50%

60%

New England New York PJM States

Percent of Total Revenues

Percent of Value Added

PJM States (DE, MD, NJ)

Raab Roundtable

February 17, 2012

$0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000

EE - Appliances

EE - Residential Lighting

EE - Residential Retrofits and New Construction

Power Plant Owner Net Revenue

EE - Commercial Retrofits, New Construction and Renewables

Audits and Benchmarking

Education and Job Training

General Fund

Program Administration and GHG Programs

Consumer Bill Reductions

Direct Bill Assistance

Direct Value Added

Indirect and Induced Value Added

Note: Each bar represents the average value added to the ten RGGI states' economies as a result of spending $1 million in each of the areas that RGGI money is allocated in the states.

Energy Efficiency:Combines

these various

elements

Value Added Multipliers: Average impacts within RGGI states

Raab Roundtable

February 17, 2012

Top 3 take-aways•RGGI cap/trade program integrated well with

electric markets, and generated positive economic value, because…

•Allowances were auctioned, capturing value for public use

•Majority of funds used in ways that maximized economic benefit (energy efficiency)

Raab Roundtable

February 17, 2012

A mandatory, market-based carbon control mechanism is functioning properly and can deliver positive economic benefits

• Program has integrated seamlessly in regional power markets

• States have collected/disbursed revenues, and worked cooperatively

RGGI reduces region’s payments for out-of-state fossil fuels

• Reduced generation (due to lower consumption) reduces payment for fuels

• Represents additional funds that stay mostly within state economies

A Region’s existing generating mix affects economic impacts

• Carbon intensity of resource mix affects magnitude of impacts on revenues for power sector

Raab Roundtable

February 17, 2012

The design of the CO2 market in the RGGI states affected the size, character, and distribution of public benefits

• Decision by RGGI states to auction allowances transfers emission rights from public to private sector at a monetary cost

• Retains value of allowances – and generates substantial revenue – for public use (preventing transfer of that value to plant owners)

• Price impacts on electric markets the same either way

Raab Roundtable

February 17, 2012

How allowance proceeds are used affects their economic impacts

• States used funds in different ways, providing a wide variety of public benefits not captured in economic analysis

• This does not decrease the value of different investment vehicles

• However, how funds are used does affect economic impact

• Energy efficiency investments have strongest positive economic impact

• Reduces consumption (particularly for participants)• Depresses wholesale prices (for all)• Keeps impacts largely within electric sector

• Other investments have strong returns, transferring value to other sectors of the economy

• Direct bill assistance • General fund contributions• Education and job training

Raab Roundtable

February 17, 2012

Positive job impacts with RGGI

• Results in thousands of jobs more than non-RGGI case• 16,000 “job-years”

• Reflects direct, indirect, induced jobs

• Some may be temporary, others longer term

• All associated only with first three years of program investments (but occur throughout the study period)

• Jobs spread around economy, e.g. • Personnel doing energy efficiency audits

• Installers of energy efficiency measures or renewable projects

• Trainers, educators

• State workers whose responsibilities might otherwise be eliminated due to budget challenges

Raab Roundtable

February 17, 2012

RGGI’s first 3 Years of program investments point to some best practices

• More rapid movement of revenues to investment vehicles speeds realization of benefits

• Energy efficiency dominates benefit calculus

• Standardization of tracking, measuring and verifying spending and results could reduce administrative burden of tracking progress and measuring benefits/costs

• States have done a good job

• But variation across states makes consistent tracking challenging

Raab Roundtable

February 17, 2012

The states have used CO2 allowance proceeds creatively – supporting diverse policy and economic outcomes • Use of RGGI revenues has allowed states to meet a wide variety of

social, fiscal, and environmental policy goals

• Addressing budget challenges

• Assisting low-income energy consumers

• Restoring wetlands• Promoting advanced

energy technologies• Assistance to

municipalities and businesses through renewable and energy efficiency funding

Raab Roundtable

February 17, 2012

Paul J. HibbardAnalysis Group111 Huntington Avenue, 10th Floor

Boston, MA [email protected]

mailto:[email protected]

Economic Impacts of RGGI: Following the Dollars

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