ACEEE'S GRAPEVINE ONLINE

January 17, 2006

THE MAGNIFICENT SEVEN: STATES TAKE THE LEAD ON GLOBAL WARMING

In 2003, New York Governor George Pataki invited other northeastern governors to launch the Regional Greenhouse Gas Initiative (RGGI) as America's first regulatory program to fight global warming by cutting carbon dioxide emissions from power plants. After two years of hard work, seven northeast states—Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont—signed a Memorandum of Understanding (MOU) in December to cut power plant carbon dioxide emissions by 10% in 2019, from 2014 levels. While this was seen as a modest step by many—stronger emissions cuts were discussed during development of the MOU—RGGI nonetheless is the first "carbon-cap" program in the Western Hemisphere.

ACEEE served as a stakeholder in the RGGI process, commenting on key issues, as well as providing data inputs for the important modeling efforts that were a core part of the initiative. We converted energy efficiency potential data from the New York State Energy Research and Development Authority (NYSERDA) and other RGGI states into a format compatible with the IPM model (a power-sector simulation model widely used by U.S. EPA and the states to assess air pollution policies). This allowed IPM to "build" efficiency in the same way that it employs power-generation technologies to meet projected electricity needs.

The modeling results showed that energy efficiency is a key to RGGI's success. Of the many scenarios run through IPM, those that invested the most in efficiency showed the lowest energy prices, the lowest carbon allowance prices, and the lowest "leakage," or offsetting carbon emissions increases outside the RGGI states. Leakage is a big issue for RGGI—initial carbon-cap runs showed that leakage could offset 60-90% of RGGI's emission reductions, as power plants in nearby states increase their output to sell into the higher-priced RGGI power markets. By increasing efficiency investment, IPM showed that leakage could be cut to 15% or less.

An economic impacts model, REMI, was used to assess RGGI's impacts on the regional economy. It showed that the impacts of the program would be very small—well under 1%—for any scenarios tested. However, REMI also showed that the high-efficiency-investment scenario produced the most positive economic impacts of all, reinforcing the principle that efficiency investment stimulates local economies more effectively than investment in conventional energy supply projects.

The big question now is whether the RGGI states will support the efficiency investment needed to realize these benefits. Efficiency does not happen all by itself in a power-sector carbon-cap-and-trade program for various reasons (see ACEEE's report on these issues). States will need to set efficiency targets through Energy Efficiency Resource Standards (EERS), increase public benefits spending, or take other measures to acquire the efficiency resources needed to make RGGI the most effective and affordable program it can be. Watch for an upcoming ACEEE report on this fascinating topic!

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