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Economic Impacts of RGGI:
Following the Dollars
Paul J. Hibbard
The Economic Impacts of the Regional Greenhouse Gas Initiative on
the Ten Northeast and Mid-Atlantic States
Raab Roundtable – February 2012
Raab Roundtable
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
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Electricity Journal Article (12-2011)
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February 17, 2012
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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Raab Roundtable
What the study is not…

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Review of carbon
reduction benefits
Review of environmental
impacts
What the study is…

 …of actual revenues, actual
programs, actual 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
February 17, 2012
Economic study
Following the money
 …through the electric sector
 …and through the macro
economy

Measuring results
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Raab Roundtable
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)
February 17, 2012
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Raab Roundtable
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
February 17, 2012
Impacts in electric
sector and larger
economy (2009-2021)
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Raab Roundtable
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
Indirect and
induced effects
of multiplier
effects of gains
and losses
IMPLAN
GE MAPS
MACROECONOMIC EFFECTS
RGGI Auctions
Net Revenue Loss for
Generators
Power Plant Owners
February 17, 2012
Consumers
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Raab Roundtable
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.
February 17, 2012
Total
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Raab Roundtable
%
Use of RGGI 11%
auction proceeds
($912 million)1%
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.
February 17, 2012
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Raab Roundtable
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]
* Using a 3% social discount rate
February 17, 2012
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Raab Roundtable
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.
February 17, 2012
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Raab Roundtable
Figure 6
7%
Summary
of RGGI Proceed Spending
New England
Figure 6
RGGI60%
States in PJM
27%
7%
Summary
of RGGI Proceed Spending
RGGI States in PJM
50%
Percent of Total
Revenues
Percent of Value
Added
27%
40%
New41%
York
30%13%
41%
13%
11%
11%
PJM States
(DE, MD, NJ)
1%
20%
10%
0%
1%
New England
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
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
February 17, 2012
New York
PJM States
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Raab Roundtable
Value Added Multipliers: Average impacts within RGGI states
Direct Bill Assistance
Consumer Bill Reductions
Program Administration and GHG
Programs
Energy
Efficiency:
Combines
these
various
elements
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.
February 17, 2012
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Raab Roundtable
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)
February 17, 2012
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Raab Roundtable
 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
February 17, 2012
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Raab Roundtable
 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
February 17, 2012
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Raab Roundtable
 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
•
•
•
February 17, 2012
Direct bill assistance
General fund contributions
Education and job training
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Raab Roundtable
 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
February 17, 2012
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Raab Roundtable
 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
February 17, 2012
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Raab Roundtable
 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
February 17, 2012
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Raab Roundtable
Paul J. Hibbard
Analysis Group
111 Huntington Avenue, 10th
Floor
Boston, MA 20199
[email protected]
617-425-8171
February 17, 2012
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