Retrospective Analysis of
US Climate Policy
Cap and Trade Policy – Measuring Cost Effectiveness
Sue Tierney, Analysis Group
Resources for the Future Workshop – Washington, DC
September 19, 2013
BOSTON
CHICAGO
DALLAS
DENVER
LOS ANGELES
MENLO PARK
MONTREAL
NEW YORK
SAN FRANCISCO
WASHINGTON
RFF Workshop: Retrospective Analysis of Carbon Policy
Overview of remarks
Assessing cost-effectiveness through a rear-view
mirror: lessons from RGGI
 Overview of Analysis Group’s study of RGGI’s first 3 years
 Lessons learned about assessing cost effectiveness
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RFF Workshop: Retrospective Analysis of Carbon Policy
Study of the Economic Impacts of RGGI
Foundation- Funded Study (11-2011):
Technical Advisory Group
 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)







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
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RFF Workshop: Retrospective Analysis of Carbon Policy
What the study is…
What the study is not…
 Economic study
 Review of carbon reduction
benefits
 …of actual revenues,
actual programs,
actual impacts
 Following the money
 …through the electric
sector
 …and through the macro
economy
 Measuring results
 Review of environmental
impacts
 Evaluation of need for a
carbon control program
 Forecast of future program
participation, effectiveness,
results
 Assessment of the
appropriateness of the cap
level
 Analysis of carbon market
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RFF Workshop: Retrospective Analysis of Carbon Policy
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)
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RFF Workshop: Retrospective Analysis of Carbon Policy
Study Approach: Following the Money….
Dollar Flows from RGGI Auction Proceeds through State Spending Impacts
RGGI Auctions
Collect Money
$912 million
over 3 years
RGGI Proceeds
Received by
States
Money
Mandated to
Programs
Money Actually
Allocated to
Programs
•
Different states
•
•
•
•
Different programs
Different agencies
Different tracking methods
Different assumptions
Money
Released to
Programs
Initial Impact of
Money Spent
Impacts (+ and -) in electric sector
and larger economy during first
three years of RGGI (2009-2011)
Ongoing Impact
of Money Spent
Impacts in electric
sector and larger
economy (2009-2021)
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RFF Workshop: Retrospective Analysis of Carbon Policy
Run the $ Through the Power System and the Economy…
Quarterly auction cycles
Flow of Data
and Modeling
Outcomes
Auction
Proceeds Spent
by RGGI States
Purchases of CO2
Allowances by FossilFuel Generators
ELECTRIC SYSTEM EFFECTS
Lower
Consumer
Demand for
Electricity
Fossil Fuel
Generators
Increase Market
Bids to Reflect
CO2 Costs
Dispatch Order
of Changes for
Some Power
Plants
$ Electricity Price Effects $
Decreased Consumer Demand ↓
Increased Generator Costs ↑
Changing Dispatch Order ↑↓
Various Other Forms
of Program Funding
(Education, Direct
Bill Assistance,
Program Admin, etc)
Energy
Efficiency and
Renewable
Project Funding
Bill Reductions for
Consumers
Macro-economic
impacts:
Direct effects of
RGGI program
spending,
consumer gains,
and producer
loss
IMPLAN
GE MAPS
MACROECONOMIC EFFECTS
RGGI Auctions
Indirect and
induced effects
of multiplier
effects of gains
and losses
Net Revenue Loss for
Generators
Power Plant Owners
Consumers
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RFF Workshop: Retrospective Analysis of Carbon Policy
Two Timeframes: Compliance Period, Modeling Period
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Representation of RGGI Program Costs and Impacts through MAPS and IMPLAN Modeling
RGGI Money
Spent
Costs
Incurred
Impact of Program Measures
(Reduction in load or increase in supply)
Generator Net Revenue and Consumer Spending Changes
(Resulting from demand reductions and price changes)
RGGI Money
Spent
Costs
Incurred
Impact of Program Measures
(Reduction in load or increase in supply)
Generator Net Revenue and Consumer Spending Changes
(Resulting from demand reductions and price changes)
RGGI Money
Spent
Costs
Incurred
Impact of Program Measures
(Reduction in load or increase in supply)
Generator Net Revenue and Consumer Spending Changes
(Resulting from demand reductions and price changes)
= IMPLAN effects
= MAPS & IMPLAN effects
= MAPS effects
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RFF Workshop: Retrospective Analysis of Carbon Policy
%
11%
Use of RGGI auction
proceeds ($912
1% million)
across the 10 states
and in the 3 electric
regions
10 RGGI states
6 New England States
General Fund/State Government Funding
EE and other Utility Programs and Audits & Benchmarking
Renewable Investment
Education & Outreach and Job Training
Direct Bill Assistance
GHG Programs and Program Administration
New York (NYISO)
DE, MD, NJ (PJM)
EE and other Utility Programs and Audits & Benchmarking
Education & Outreach and Job Training
GHG Programs and Program Administration
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.
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RFF Workshop: Retrospective Analysis of Carbon Policy
Value Added Multipliers: Average impacts within RGGI states
Direct Bill Assistance
Consumer Bill Reductions
Program Administration and GHG
Programs
General Fund
Education and Job Training
Audits and Benchmarking
EE - Commercial Retrofits, New
Construction and Renewables
Direct Value Added
Power Plant Owner Net Revenue
Indirect and Induced Value Added
EE - Residential Retrofits and
New Construction
EE - Residential Lighting
EE - Appliances
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000
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.
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RFF Workshop: Retrospective Analysis of Carbon Policy
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
– lower revenues to power plant owners (NPV)
billion
$0.77 billion
– fewer dollars spent on out-of-region fossil fuel (NPV)
16,000 jobs
– jobs created
0.7 percent
– average electricity bill increases during 3-year RGGI
period [with savings over time given energy efficiency
implemented with RGGI funds]
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RFF Workshop: Retrospective Analysis of Carbon Policy
Total Economic Impact – All RGGI States
Direct, Indirect, and Induced Value Added (3% Public Rate)
$2,500
$2,000
Economic Value Added (millions of $)
$1,500
$1.6 B
Indirect &
Induced
Impacts
$1,000
$500
Direct
Impacts
$-
$(500)
$(1,000)
$(1,500)
$(2,000)
Power Plant Owner Net Revenue
Consumer Bill Reductions
RGGI Program Funding
Total
Notes: Figures represent dollars discounted to 2011 using a 3% public discount rate.
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RFF Workshop: Retrospective Analysis of Carbon Policy
Observations about outcomes and analysis
September 3, 2013
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RFF Workshop: Retrospective Analysis of Carbon Policy
 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
• Effect of economy, consumption, and fuel prices relative to
original cap affected allowance prices and ultimate revenues
for public use
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RFF Workshop: Retrospective Analysis of Carbon Policy
 How allowance proceeds are used affects their economic
impacts
• States used funds in different ways, providing a wide variety
of public benefits – with some outside the electricity sector
• How funds are used does affect nature of 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
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RFF Workshop: Retrospective Analysis of Carbon Policy
 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
first 3 years (when carbon prices are incurred)
• Increase in net revenues in first 3 years for all non fossil-fueled
resources
• Effect of reduced consumption reduces revenues for fossilfueled and non fossil-fueled resources over twelve-year
modeling period (2009-2021)
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RFF Workshop: Retrospective Analysis of Carbon Policy
 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
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RFF Workshop: Retrospective Analysis of Carbon Policy
 Timing Differences in Program Costs Versus Benefits Affects
Results
• Costs and price impacts incurred immediately
• Investments that have positive impacts take longer
•
•
Movement of money through state administrative channels
introduces some delay (though use of RGGI proceeds relatively
efficient)
Investments can take time to produce benefits (energy efficiency
benefits accrue over time; renewable generation takes time to
construct, and produces output over long time period)
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RFF Workshop: Retrospective Analysis of Carbon Policy
Additional slides
September 3, 2013
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RFF Workshop: Retrospective Analysis of Carbon Policy
Auction and Direct Sales Proceeds
1,000
From left to right:
Vermont
900
Rhode Island
Delaware
800
Maine
New Hampshire
RGGI Proceeds (millions of $)
700
$912 M
Downward trend in auction proceeds
from 2009-2011 results from:
-Fewer allowances sold over time
-Lower allowance prices over time
Connecticut
New Jersey
Massachusetts
600
Maryland
New York
500
All RGGI States
400
300
200
100
2009
2010
2011
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.
Total
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RFF Workshop: Retrospective Analysis of Carbon Policy
How the states spent their auction proceeds: $912 m
Maryland
New York
New Jersey
New
Hampshire
General
Fund
Bill
Assistance
Connecticut
Rhode Island
Maine
Delaware
Renewables
Educ
Training
Vermont
Massachusetts
GHG
Programs
Energy
Efficiency
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RFF Workshop: Retrospective Analysis of Carbon Policy
Summary of RGGI Proceed Spending
General
EE and other
Fund/State
Utility Programs
Government
and Audits &
Renewable
Outreach and
Direct Bill
and Program
Funding
Benchmarking
Investment
Job Training
Assistance
Administration
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont
New England Subtotal
$
New York
New York Subtotal
$ 90,000,000
$ 90,000,000
$ 10,705,482
325,324
$ 11,030,806
$
337,290
3,108,774
1,181,506
314,528
$ 4,942,097
$
$
17,083
17,083
$ 163,660,609
$ 163,660,609
$ 16,800,000
$ 16,800,000
$ 8,600,000
$ 8,600,000
$
$
-
Delaware
$
Maryland
7,770,000
New Jersey
74,950,622
RGGI States in PJM Subtotal $ 82,720,622
$
$
5,471,340
27,089,246
$ 32,560,586
$
4,181,160
$ 4,181,160
All RGGI States
$ 440,130,044
$ 60,391,392
$ 17,723,257
$ 181,992,738
$
GHG Programs
37,667,961
22,831,749
133,960,304
21,483,151
13,210,854
6,496,814
$ 235,650,833
$
9,272,116
9,272,116
Education &
$
13,977,755
26,840,847
40,818,602
Total
$
3,020,516
4,398,768
5,093,587
998,939
744,155
102,630
$ 14,358,596
$ 51,731,248
27,230,517
142,505,072
32,935,712
14,269,538
6,599,444
$ 275,271,531
$ 48,588,106
$ 48,588,106
$ 327,648,716
$ 327,648,716
$
1,663,210
115,465,494
10,185,525
$ 127,314,229
$
6,809,816
9,871,582
6,069,154
$ 22,750,552
$ 22,450,780
169,600,424
118,294,547
$ 310,345,751
$ 127,331,312
$ 85,697,254
$ 913,265,997
Source: Individual state reports and interviews.
Note: NY dollars include interest earned in addition to proceeds from the RGGI auctions.
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RFF Workshop: Retrospective Analysis of Carbon Policy
Consumer Bill Reductions
(including non-electric savings), 3% Public Rate
$1,800
Consumer Bill Reductions (millions of $)
$1,600
$1,400
$1.3 B
$1,200
$1,000
$757 M
$800
$600
$400
$285 M
$228 M
$200
$-
Notes: Figures include GE MAPS outputs, non-electric benefit calculations, and capacity market gain calculations.
Figures represent dollars discounted to 2011 using a 3% public discount rate.
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RFF Workshop: Retrospective Analysis of Carbon Policy
Consumer Bill Reductions
Total Electric
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont
New England
$
Consumer Bills -
Capacity Payment
Consumer Bills - Non-
Consumer Bill
Total Consumer Bill
Electric
Changes
Electric
Reductions
Reductions
(6,650,690) $
(7,236,029)
(30,649,188)
(753,123)
(1,847,570)
(47,136,600) $
26,429,585
73,450
3,259,024
7,989,290
37,751,348
$
$
(141,224,211) $
(73,504,539)
(361,805,441)
(27,946,341)
(52,359,037)
(15,701,200)
(672,540,770) $
$
$
147,874,900
80,740,568
392,454,630
28,699,464
54,206,607
15,701,200
719,677,369
$
174,304,485
80,740,568
392,528,079
31,958,488
54,206,607
23,690,491
757,428,718
New York
New York
$
$
(141,233,888) $
(141,233,888) $
(1,387,285) $
(1,387,285) $
84,935,514
84,935,514
$
$
142,621,173
142,621,173
$
$
227,556,688
227,556,688
Delaware
Maryland
New Jersey
RGGI States in PJM
$
$
(20,331,449) $
(69,312,006)
(130,601,288)
(220,244,744) $
(1,547,964) $
(4,239,292)
(8,135,266)
(13,922,522) $
29,458,067
21,491,696
50,949,763
$
$
$
21,879,413
73,551,298
138,736,554
234,167,265
$
51,337,480
95,042,994
138,736,554
285,117,028
All RGGI States
$
(1,034,019,402) $
(62,446,406) $
173,636,626
$
1,096,465,808
$
1,270,102,434
Note: Figures reflect the use of a 3% public discount rate.
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RFF Workshop: Retrospective Analysis of Carbon Policy
Power Plant Owner Net Revenue Changes
(using 3% public discount rate)
$-
Power Plant Owner Net Revenue (millions of $)
$(200)
$(400)
$(600)
$(800)
$(1,000)
$(1,200)
$(1,400)
$(1,600)
- $1.6 B
$(1,800)
Notes: Figures include GE MAPS outputs, allowance true-up calculations, and capacity market loss calculations.
Figures represent dollars discounted to 2011 using a 3% public discount rate.
Page 24
RFF Workshop: Retrospective Analysis of Carbon Policy
Total Economic Impact – Value Added and Job-Years
1
Value Added (millions of $)
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont
New England Subtotal
$
Employment
2
$
189
92
498
17
69
22
888
1,309
918
3,791
458
567
195
7,237
New York
New York Subtotal
$
$
326
326
4,620
4,620
Delaware
Maryland
New Jersey
RGGI States in PJM Subtotal
$
$
63
127
151
341
535
1,370
1,772
3,676
Regional Impact3
$
57
601
Grand Total
$
1,612
16,135
Notes:
[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.
[2] Employment represents job-years as outputted from IMPLAN.
[3] Regional Impact reflects the indirect and induced impacts resulting within the RGGI region as a result of state dollar
impacts.
[4] Results are discounted to 2011 dollars using a 3% social discount rate.
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RFF Workshop: Retrospective Analysis of Carbon Policy
Susan Tierney
Managing Principal
Analysis Group
111 Huntington Ave, 10th Floor
Boston, MA 02199
617-425-8114
stierney@analysisgroup.com
September 10, 2013
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