The Regional Greenhouse Gas Initiative of the New England and Mid-Atlantic States

Summary:  The Regional Greenhouse Gas Initiative, including the six New England states and four Mid-Atlantic states, is the oldest greenhouse gas reduction regime in the U. S, using a cap-and-trade mechanism. Greenhouse gases are responsible for global warming occurring in recent decades.  It is also the most modest, affecting only emissions originating from electric power plants.  Since it began operating in 2009, it has collected large sums of money and has led to the creation of many new jobs and businesses.  While this modest beginning is praiseworthy, it is important to strive toward major, significant reductions in greenhouse gases, so that the increased level of greenhouse gases in the atmosphere can be stabilized.  

Introduction:  In recent years three regional initiatives have been set in place in the U. S. The Western Climate Initiative, formalized in February 2007; the Midwestern Greenhouse Gas Reduction Accord, set in place in November 2007; and the Regional Greenhouse Gas Initiative (RGGI), established in July 2007.  RGGI is discussed in this post.  The three regional accords encompass 23 states in the U. S. as well as several Canadian provinces.  Additional states and provinces are “observers” of the various accords.

The American states participating in these three agreements, and their greenhouse gas emissions, are shown in the following map:

Map displaying the three regional greenhouse gas emission reduction programs in the U. S. (omitting Canadian provinces in WCI and the Midwest Group as well as their contributions to emissions).  WCI: Western Climate Initiative; Midwest Group: the Accord; RGGI: Regional Greenhouse Gas Initiative.  MtCO₂e: Millions of metric tonnes of greenhouse gas emissions expressed in terms of carbon dioxide-equivalent greenhouse activity.  Percents are the portions of total U. S. emissions.  

Source: World Resources Institute (http://www.wri.org/stories/2007/11/midwest-greenhouse-gas-accord-numbers)

RGGI incorporates the ten states of Maine, New Hampshire, Vermont, Rhode Island Massachusetts, Connecticut, New York, New Jersey, Delaware, and Maryland.  The notion of setting up this regime began with Gov. George Pataki of New York.  In 2003, he wrote the governors of 11 other states in the Northeast proposing to limit greenhouse gas emissions.  He recognized the success of cap-and-trade in combating the sulfur emissions from Midwest power plants that cause acid rain, and identified under the U. S. Clean Air Act.  

RGGI was formalized in July 2007 by the establishment of the nonprofit corporation RGGI, Inc., whose role is to coordinate and oversee the administration of the Initiative.  As with the other two accords, it is up to the individual states to enact the enabling laws for operation of the Initiative in the respective states.  A Memorandum of Understanding (MOU) among the member states was initially issued in December 2005 by seven of the ten states.  The remaining three joined by early 2007.  As such, RGGI is the first of the three regional greenhouse gas accords currently operating in the U. S.

The MOU recognizes that global warming due to man-made greenhouse gases is occurring, and that the resulting increase in average global temperature has negative effects on the states involved, including more severe droughts and floods, changes in forest composition, and increasingly damaging storm surges along the coast.  It also recognizes that reducing the need for imported fossil fuels will enhance energy security and will lead to development of new industries related to renewable and sustainable energy sources.

Contrary to the WCI and MGGRA which cover all major activities that produce greenhouse gases, the RGGI accord agreed on controls only for fossil fuels used in electric power generation, affecting facilities with greater than 25 megawatts (MW) generating capacity.  It covers 209 facilities across the region.  The member states agreed to create a CO2 Budget Trading Program within the region, with the goal of stabilizing and then reducing the overall emissions from this source.  Each state’s base emission amount was established at the outset, totaling 188 million tons of CO2, and is to remain fixed at that level from 2009 through 2014.  The emissions limits are implemented by selling emission allowances, where 1 allowance covers 1 ton of CO2 emissions.  Starting in 2015, the allowances for each state are to be reduced by 2.5% per year, so that by 2018 the emissions will be 10% below the starting level.  The Trading Program is in fact a cap-and-trade regime, in which the allowances are tradable in an auction market.  The auctions occur quarterly.  They ensure fair pricing of the right to emit greenhouse gases on an open market available to all parties.  RGGI estimates that the auction price increases the cost of electricity to the consumer by only 0.4% to 1%.

The MOU also allows for offsets that serve as substitutes for actual reductions of CO2 emissions from a particular source.  Instead of achieving reductions in emissions at an emitting site, the source may use a limited part of its CO2 allowances to purchase offsets from remote facilities that accomplish reductions of emissions or new increases in CO2 removal from activities such as afforestation.  Initially the offset facilities must be within the region covered by the Initiative, but can be expanded to be anywhere in North America.  Allowances granted are biased to favor using offsets within the region.

Each RGGI state uses two thirds of the proceeds from the sale of allowances to promote activities that contribute to further reduction in greenhouse gas emissions.  These include subsidizing energy conservation activities and promoting renewable energy industries.

The RGGI model presents itself as serving as an example for a) a functioning cap-and-trade regime, b) a program that will reduce greenhouse gas emissions from fossil fuels, and c) identifying and promoting new ventures developing renewable energy sources and conservation.   As the oldest regional accord in the U. S., RGGI should serve as an example for the other regional greenhouse gas reduction accords, as well as for any federal regime that may emerge directed toward reducing greenhouse gas emissions.

Political Environment and Practical Results.  RGGI is the first regional initiative in the U. S. set in place to combat greenhouse gas emissions that cause global warming; as noted, it uses a cap-and-trade system to achieve its objectives.  Political supporters of such programs point out that the revenues received from allowances should be considerable, and will support development of new businesses and creation of new jobs.  Enterprises involved in energy conservation, and the development and installation of renewable energy sources, benefit from investment of these public funds in their activities.  Opponents of such programs, and especially cap-and-trade regimes, point out that consumers wind up paying the extra costs to cover the expense of buying allowances.  This extra expense, they argue, inhibits job growth and enterprise creation, leading to exporting jobs elsewhere.

These considerations, and others, have led to the failure to impose greenhouse gas restrictions at the federal level in the U. S.  It is reported, however, that as of December 2010 RGGI has been a success in most of the states covered by RGGI.  Nine auctions have been held, garnering $729 million.  The auctions have proceeded without problems, contrary to the early experiences of the European Union’s Emission Trading Scheme.  In New York, for example, every dollar spent promoting renewable energy spawns six dollars of overall new economic activity.  RGGI states have created hundreds to thousands of new jobs from these funds.  This modest success in RGGI (based on power plant sources only) suggests that the two other, newer, greenhouse gas initiatives, WCI and MGGRA, should also have positive effects.

Unfortunately, positive revenue balances in government accounts are always susceptible to attack.  In the present economic environment in which most U. S. states have severe budgetary deficits, such reservoirs look very attractive.  It is reported that Gov. Chris Christie of New Jersey has diverted $65 million from RGGI revenues for general expenditures.  In Connecticut former Gov. Jodi Rell likewise diverted ratepayer funds for the energy Efficiency Fund; currently some may be restored (email from Clean Water Action). 

RGGI Leads the Way toward Stabilizing the World’s Atmospheric CO2 “Bathtub”.  The modest reductions in the emissions of greenhouse gases under RGGI are first steps toward achieving a leveling off of the atmospheric CO2 concentration.  Much more needs to be done, however. The global atmosphere, and its CO2 component, can be thought of as a "bathtub", having a "faucet" that adds new CO2, and a "drain" that removes CO2.  The present amount of CO2, about 390 parts per million (ppm), is already higher than in the past several thousand years, and the highest since the start of the industrial revolution.  The”faucet”, including increased burning of fossil fuels worldwide, is adding about 2 ppm CO2 each year; the “bathtub” is getting fuller.  (There are fewer balancing activities that “drain” CO2 and other greenhouse gases from the atmospheric “bathtub”.)  The stronger greenhouse effect from this CO2 leads to higher overall, long-term, global temperatures, which are also higher than in the past. 

Thus it is imperative not merely to reduce the rate of adding new greenhouse gases to the atmospheric “bathtub”, but rather to achieve zero world-wide emissions as soon as practically possible. 

References:

RGGI Fact Sheet http://www.rggi.org/docs/RGGI_Fact_Sheet.pdf.

RGGI CO2 Allowance Tracking System http://www.rggi.org/docs/RGGI_COATS_in_Brief.pdf

© 2011 Henry Auer

Midwestern Greenhouse Gas Reduction Accord

ADDENDUM, September 13, 2012:
The web site, the Center for Climate and Energy Solutions (CCES), is the successor to the Pew Center on Global Climate Change.  CCES reports that The Midwest Greenhouse Gas Reduction Accord, while not having been formally disbanded, is not being actively implemented by the signing States.

Summary.  The United States now has three regional interstate agreements operating with the objective of reducing emissions of greenhouse gases (GHGs), the Western Climate Initiative, the Midwestern Greenhouse Gas Reduction Accord and the (Northeast states) Regional Greenhouse Gas Initiative.  This post discusses the Midwestern Greenhouse Gas Reduction Accord.  It was established in November 2007, and uses a cap-and-trade mechanism, with successively lower annual caps, to achieve reduction in GHGs emissions.  The Midwestern Accord covers most sectors of the energy economy that emit GHGs.  Its models predict significant reductions in GHG emissions over the coming decades.

Introduction. The governors of Illinois, Iowa, Kansas, Michigan, Minnesota and Wisconsin, and the premier of Manitoba agreed to participate in a new regional agreement to curb emissions of greenhouse gases, the Midwestern Greenhouse Gas Reduction Accord (the Accord, or MGGRA), on November 15, 2007.

The Accord joins the Western Climate Initiative (see the earlier post and the (Northeast states) Regional Greenhouse Gas Initiative that have recently been put in place around the U. S. in the absence of a single comprehensive program at the U. S. federal level to combat global warming.  In addition to their American member states, the Accord and the Western Climate Initiative between them include many Canadian provinces, but not Alberta and Saskatchewan.  Alberta is home to the emissions-intensive extraction of an oil product from tar sands; indeed, Alberta is responsible for the most GHG emissions of all the Canadian provinces.

The American states participating in these three agreements, and their greenhouse gas emissions, are shown in the following map:

Map displaying the three regional greenhouse gas emission reduction programs in the U. S. (omitting Canadian provinces in WCI and the Midwest Group as well as their contributions to emissions).  WCI: Western Climate Initiative; Midwest Group: the Accord; RGGI: Regional Greenhouse Gas Initiative.  MtCO₂e: Millions of metric tonnes of greenhouse gas emissions expressed in terms of carbon dioxide-equivalent greenhouse activity.  Percents are the portions of total U. S. emissions.  

Source: World Resources Institute (http://www.wri.org/stories/2007/11/midwest-greenhouse-gas-accord-numbers)

According to the World Resources Institute, the Midwest generates much of its electricity from coal.  Coal is the fuel that produces the most CO2 emissions per unit of derived energy of all the fossil fuels used for energy production.  This region also generates a large amount of GHG emissions from agriculture.  As a result, per capita emissions are 50-70 percent higher here than they are from coastal regions of the country.

Goals of the Accord.  The Accord includes the objectives of

1.     Establishing GHG reduction targets, and schedules for achieving them;

2.     Establishing a monitoring system for accurately recording GHG emissions from the various sources covered, and ensuring credit for reductions in emissions; and

3.     Developing a market-based cap-and-trade system covering most classes of GHG sources as a principal mechanism for achieving reductions.

Cap-and-Trade Model. The Accord specifies that the mechanism for reducing emissions should be a cap-and-trade program.  Generally, cap-and-trade relies on accurate emissions reporting from all sources, and the granting of “emission allowances” to each industrial and commercial source.  The number of allowances issued establishes the cap, or upper limit, of emissions across the program.  Each allowance permits the owner to emit 1000 metric tons of CO2-equivalent GHGs in a year.   The allowances can be bought or sold (traded) in a regional allowance market.  This market system establishes a price for emitting GHGs, which in essence creates a penalty for emitting.  This provides an incentive for each source to innovate in order to reduce emissions, thus lowering its costs each year.  The cap is lowered each year.

In order to develop policies that would guide putting the Accord into practice, the participants appointed an Advisory Group that included representatives from the respective governments, environmental groups, industry and agriculture.  Its subgroup responsible for drafting the detailed program included stakeholders across a broad range of affected interests, such as the Union of Concerned Scientists, the Natural Resources Defense Council, the Wisconsin Energy Conservation Corp., The Public Service Commission of Wisconsin, and Duke Energy.  It also employed energy and economic consultants in this project.  This group devoted considerable effort to develop emissions and economic models based on a cap-and-trade emissions reduction model resulting from scenarios under consideration.  Its report to the Advisory Group was issued May 11, 2009. 

Timeline.  The Advisory Group report (Note 1) establishes that compliance with cap-and-trade program will begin January 1, 2012.  With this date in mind, participants in the Accord must have begun reporting their emissions of the six classes of greenhouse gas (see below) on January 1, 2011, based on data that have been collected starting January 1, 2010.

Emissions Targets.  The Advisory Group recommended reducing GHG emissions by 20 percent below 2005 levels by 2020, and by 80 percent below 2005 levels by 2050.  These are to be achieved by having the program cover most aspects of the energy economy, including electric generation and electric power imports into the Accord region from outside the region, transportation fuels, industrial sources of combustion and process sources, fuels used for commercial, industrial and residential buildings.  Sources emitting more than 25,000 tonnes CO2-equivalents/year, and electric generating facilities having a capacity of 25 MW or greater are included.  As biomass, biofuels and emissions originating from life forms are renewable, these sources are excluded from the caps. 

The covered GHGs include carbon dioxide, methane, nitrous oxide, hydro-fluorocarbons, perfluorocarbons, and sulfur hexafluoride.  Many of these substances have as much as several thousand times the greenhouse effect, molecule-for-molecule, than does carbon dioxide.  This fact is the reason for expressing emissions reductions in terms of CO2-equivalents.

Allowances.  Allowances are the permits for emitting GHG gases, and are limited by the cap for a given year.  The Advisory report emphasizes the need to price them appropriately to achieve the objectives while minimizing economic harm to end consumers.  Revenues are to be devoted to development of new technologies that promote the goals of the program, and for job retraining that promotes employment in the many new industries that are related to achieving emissions reduction.

Complementary Reductions.  The program also envisions that other measures directed to energy conservation will complement the cap-and-trade regime.  In the Advisory report, for example, complementary reductions based on energy efficiency reductions of 1%/yr and 2%/yr are included.

Offsets. Offsets refer to activities not otherwise regulated by the program that contribute to overall lowering of GHG emissions, i.e., they are not directly subject to reductions of emissions occurring at GHG sources.  In the Advisory report offsets are limited to 15% of the capped GHG emission allowances that a particular source  was awarded.  Yet they are “purchased” using allowances issued by the program.  Examples of offset activities include agricultural practices that reduce emissions, forest management that leads to reforestation or promoting growth of existing forests, and waste management such as capturing GHGs (primarily methane) emitted from landfills.  To qualify, offsets must a) represent actual emissions reduction that can be accounted for, b) be in addition to reductions that would have taken place under the program without offsets, c) be easily monitored and verified, and d) be permanent.  Initially emissions offsets are to be contracted only among the participants in the Accord, and other states and provinces that agree to accept offsets.  Subsequently additional international offset agreements may be set in place.  The Advisory report envisions that by far the largest fraction of offsets purchased will be from CO2 sequestration activities (Note 1).  It is to be noted however, CO2 sequestration remains an experimental technique at this time whose feasibility remains to be shown.

Predicted Results from Cap-and-Trade.  The Advisory Group prepared elaborate modeled predictions of the expected lowering of GHG emissions using alternative input assumptions (Note 1).  The models include a reference case based on “Business-As-Usual”, i.e., continuation of pre-Accord activities; complementary activities only, including the predicted effects of a 1%/yr and a 2%/yr reduction in emissions arising from implementing  energy efficiency programs; and the effects of the cap-and-trade program.  Selecting one example from the report’s slides, the graphic below shows the results that are predicted, in the various GHG-emitting economic sectors up to 2030.

Predicted GHG emissions under various scenarios.  TgCO₂e: teragrams (trillions of grams, or megatonnes (metric)) of CO2-equivalent emissions.  CAGR: compound annual growth rate, referring to the percent figures to the right of each color-coded economic sector’s band.  RefCase: Reference Case arising from Business-As-Usual (modeled by the uppermost heavy red line). Comp. Policies (1%EE): Results predicted for only 1%/yr energy efficiency (modeled by the orange dashed line). Comp. Policies (2%EE): Results predicted for only 2%/yr energy efficiency (modeled by the green dashed line).  The black bracket at the upper right gives the total results including capped emissions reductions.

Source: Cap-and-Trade Modeling: Policy Run Results, Presentation to the GHG Accord Advisory Group, 11 May 2009, Minneapolis, MN.  Midwestern Greenhouse Gas Reduction Accord.

The graphic shows that from 2005 to 2030, business-as-usual (the heavy red line) leads to an increase from about 840 TgCO₂e to about 920 TgCO₂e predicted, or about 0.36%/yr.  Starting at 2012, the effects of only energy efficiency programs of 1%/yr and 2%/yr lead to modest but measurable reductions in emission on their own.  The additional effect of putting a cap-and-trade program in place is predicted to yield an important reduction in emissions, practically all of which originates in the electric power sector.  Relative to business-as-usual, emissions from this sector are predicted to drop by 69% by 2030, as a result of efficiency gains of 2%/yr and cap-and-trade (Note 1.)  This corresponds to the 4.0%/yr shown in the graphic.  The models explicitly rely on sequestration of CO2 in coal-fired power plants for a major portion of this emissions reduction, even though this technology remains experimental at this time.  In contrast to electricity generation, the transportation and industrial sectors apparently would respond only minimally to a cap-and-trade program.

The Advisory report (Note 1) presents several alternative models of allowance pricing over time.  An example is presented in the following graphic:

Modeled pricing for one GHG emission allowance under cap-and-trade, in dollars valued in 2006 per tonne of CO₂e emitted.  Platform case: full effect of cap-and-trade and energy efficiency programs, showing 1%/yr (blue) and 2%/yr (red) efficiency assumptions. 

Source: Cap-and-Trade Modeling: Policy Run Results, Presentation to the GHG Accord Advisory Group, 11 May 2009, Minneapolis, MN.  Midwestern Greenhouse Gas Reduction Accord.

 

According to the graphic, the effect of greater efficiency is to lower significantly the premium needed to purchase an emission allowance.  The price rises with passing years because the cap is progressively lowered, so that fewer allowances are available for purchase.  An effect of pricing allowances in this way is modestly to increase the cost of energy, yet the program envisions recycling the revenue from the sale of allowances into research and development directed toward renewable energy sources, thereby ultimately leading to lower costs at retail.  It also funds worker training programs.  The report notes that in 2007 the U. S. member states had a regional gross domestic product of $1,700 billion, yet by 2030 the incremental cost of allowances is only about $1 billion for electric power, and much less for the other affected economic sectors.  The report predicts that for an average household, in 2030 the full cost of allowances might add $60-$400/yr to vehicle fuel purchases, and about $40-$200/yr in natural gas purchases (Note 1).

Opposition to MGGRA.  Russ Harding, writing on the Mackinac Center for Public Policy website, reports that a Michigan legislator has introduced a bill that would remove Michigan from the Accord.  In this post, he argues that efforts to reduce emissions will lead to higher energy costs, and will lead to loss of jobs in the state.  According to Mr. Harding, similar bills are to be introduced in Wisconsin, Iowa and Minnesota.

The Advisory report, on the other hand, identifies new or expanded industries arising as a result of the cap-and-trade program, such as biofuels, renewable energy and innovative research, development and commercialization ventures.  These should provide many new job opportunities for the work force.

Conclusion.  The MGGRA was established in recognition that the U. S. federal government has failed to implement a single nation-wide program for reducing the consumption of fossil fuels, lowering greenhouse gas emissions, and developing new industries based on renewable energy (Note 2).  The Accord recognizes that climate change presents increasing risks in the economic, social and environmental realms.  It acknowledges that we now have sufficient scientific knowledge concerning the certainty of the sources of climate change that we must act now to reduce its effects. Importantly, it signals the failure of the U. S. federal government to enact a national response to climate change whereas many states and other nations around the world have done so.  These are among the foundations cited by the Accord to justify creating the MRGGA.  Together with the WCI and the RGGI, MRGGA covers a significant portion of the U. S. both in terms of population and GHG emissions.  These pioneering agreements offer a way forward for the U. S. to begin to address global warming.

Notes.

1. Cap-and-Trade Modeling: Policy Run Results, Presentation to the GHG Accord Advisory Group, 11 May 2009, Minneapolis, MN.  Midwestern Greenhouse Gas Reduction Accord.

2. Midwestern Greenhouse Gas Reduction Accord, November 15, 2007

© 2011 Henry Auer