Regional Greenhouse Gas Initiative (RGGI)
The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among the 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. In January 2018, the Governor of New Jersey signed an Executive Order requiring the state to rejoin RGGI after withdrawing in 2012. Additionally, RGGI Inc. issued a press release in November 2017, indicating that Virginia may soon join RGGI.
The 2014 RGGI cap was 91 million short tons, which then declines 2.5 percent each year from 2015 to 2020. According to the Environmental Defense Fund, the RGGI has reduced greenhouse gases from the power sector by 40% since 2005.
Each participating state develops its own plan for investing revenues, but overall proceeds are allocated as follows:
- 52 percent to improve energy efficiency
- 11 percent to accelerate deployment of renewable energy technologies
- 14 percent to provide energy bill payment assistance, including assistance to low-income ratepayers
- 1 percent for a wide variety of greenhouse gas reduction programs, including programs to promote the development of carbon emission abatement technologies, efforts to reduce vehicle miles traveled, and programs to increase carbon sequestration
The Regional Greenhouse Gas Initiative (RGGI) has been a boon to the nine member states’ economies while CO2 emissions from power plants have dropped by about 18%, according to a report released in July, 2015..
How much of the emissions reductions was actually due to the cap is arguable. The original cap was far above the actual emissions and has since been modified downward.
The RGGI has been in place since 2009. It has added about $1 billion in revenues to the region in two three year periods analyzed (2009-2011) and (2012-2014), or a total of about $2 billion. But the boon to the economy is greater than that. The report estimates that the second three-year period generated $1.3 billion in net economic benefits across the region (in 2015 dollars), on top of that from the first three years (2009-2011) of $1.6 billion of economic value added (in 2011 dollars).
The extra benefit is primarily from savings generated by investments in energy efficiency programs that reduce energy consumption in the electricity sector, and investments in renewable projects that have low operating cost. Both lower the amount paid out for energy, and offset the increased electricity prices resulting from the cost of RGGI allowances.
Power plant owners recover the costs of CO2 in the short run but see lower demand in the long run, thus dropping their revenues. Therefore plants with lower CO2 emissions get a competitive advantage. The net of these competing forces is shown in the figure on the right.
In terms of GDP (or Gross State Product) in the past six years the region has performed on a par with the rest of the U.S. The largest economy in the RGGI – New York – actually did better than the U.S. overall.
Last updated June 15, 2018