RGGI’s Economic Impacts, 2012-2014 Findings from Analysis Group Report July 24, 2015 California...

RGGI’s Economic Impacts, 2012-2014Findings from Analysis Group Report

July 24, 2015California Energy CommissionIEPR Commissioner Workshop

Paul Hibbard

RGGI Study, Compliance Period 2

July 2015

StudyIndependent Power System and Economic Review• Independent analysis of Compliance

Period II (2012-2014)• Methodologically Consistent with review

of Compliance Period I (2009-2011)• Analysis Group - full analytic/editorial

control

Funding• Barr Foundation• Energy Foundation• The Thomas W. Haas Foundation at the

NH Charitable Foundation• Merck Family Fund• Maine Environmental Funders Network

Reviewers• Michael J. Bradley, Chris Van Atten, Carrie

Jenks, M.J. Bradley & Associates• Jennifer Macedonia, Bipartisan Policy

Center• Rich Sedano, Regulatory Assistance Project


July 2015

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


July 2015

Bottom line results: Net positive economic impacts for:

the 9 RGGI states together, and for each state participating in RGGI

Across the region, the initial $0.98 billion in CO2 allowance auction proceeds translates to $1.3 billion in net economic value

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, etc.)

Six years of RGGI implementation providesa host of data, information and lessons for states considering CPP compliance


July 2015

Study Approach


July 2015

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…P

RO

MO

D IMP

LA

NFlow of Dataand Modeling

Outcomes


July 2015

Power Sector Modeling – PROMODDiagram of PROMOD Modeling Inputs and Outputs


July 2015

Allowance Sale Revenues, Use of Proceeds


July 2015

Auction and Direct Sales Proceeds


July 2015

Use of RGGI auction proceeds ($983 million)across the 9 states and in the 3 electric regions


July 2015

Economic Impacts


July 2015

Overall economic impacts – 9 states

$1.3 billion – economic value added in the region (NPV*)

$0.98 billion – auction proceeds 2012-2014

$0.45 billion – consumer savings (electricity, heating customers) (NPV*)

$0.5 billion – lower revenues to power plant owners (NPV*)

$1.27 billion – fewer dollars spent on out-of-region fossil fuel (NPV*)

14,000 jobs – jobs created

* Using a 3% social discount rate


July 2015

Total Economic Impact – All RGGI StatesDirect, Indirect, and Induced Value Added (3% Public Rate)

$1.3 B


July 2015

Observations


July 2015

Mandatory, Market-Based Carbon Control Mechanisms are Functioning Properly and Can Deliver Positive Economic Benefits

• First mandatory market-based program meeting objectives while delivering economic benefits

• Program has integrated seamlessly in regional power markets

• States have retained full implementation authority, but have worked cooperatively for longer than six years through:

• Regional program design and state legal/regulatory processes

• Setting of cap; allocation of allowance pool• Auctioning of allowances, monitoring of market• Shared administration and governance• Major program redesign, including tightening of cap


July 2015

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

• Prevents transfer of that value to power plant owners • Price impacts on electric markets the same either way

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


July 2015

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

• 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 • Education and job training


July 2015

Positive job impacts with RGGI

• Results in thousands of jobs more than non-RGGI case

• 14,000 “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


July 2015

RGGI Reduces the 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

• Reductions in net revenues for fossil-fueled facilities during 2012-2014 (when carbon prices are incurred)

• Increase in net revenues during 2012-2014 for all non fossil-fueled resources

• Effect of reduced consumption reduces revenues for fossil-fueled and non fossil-fueled resources over thirteen-year modeling period (2012-2025)

• Improved competitive position for non-emitting resources


July 2015

Six Years of RGGI Implementation Provide a Wealth of Data and Information for States Considering CPP Compliance Options

• Multi-state approach increases options and flexibility, and decreases total compliance costs

• State authorities/jurisdictions fully preserved• Multi-state coordination highly successful despite political and

economic diversity across participating states

• Common pooling and auction of allowances improves program efficiency, reduces administrative costs

• Single clearing price on carbon integrates seamlessly across adjoining power markets; no impact on power system reliability

• Retention of allowance proceeds benefits states• States free to apply revenues to achieve diverse public policy

objectives• Reinvestment in energy systems mitigates impacts, generates

economic benefits


July 2015

Paul J. Hibbard

Analysis Group111 Huntington Avenue, 10th Floor

Boston, MA 20199

RGGI’s Economic Impacts, 2012-2014 Findings from Analysis Group Report July 24, 2015 California...

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