REGIONAL GREENHOUSE GAS INITIATIVE
KEEA ISSUE BRIEF
OVERVIEW: REGIONAL GREENHOUSE GAS INITIATIVE
On October 3, 2019, Governor Wolf issued an Executive Order directing the Department of Environmental Protection (DEP) to initiate a rulemaking for Pennsylvania to join the Regional Greenhouse Gas Initiative (RGGI), a multi-state compact of Northeastern and Mid-Atlantic states to reduce carbon pollution.[i]
States that participate in RGGI place a cap on carbon emissions from power plants and require power plants to purchase allowances in order to emit carbon and trade with other generators. This mechanism effectively creates a price on carbon that rewards generators of low-and zero-carbon electricity. States then reinvest the proceeds for the carbon price into the local economy.
Generally, allowance expenditures are designed to reduce or offset the impact of the program on ratepayers and advance carbon reduction strategies. Since energy efficiency programs achieve both goals, states invest on average more than half of RGGI proceeds in energy efficiency. [ii]
ENERGY EFFICIENCY IS A POWERFUL CARBON-REDUCTION TOOL
Pennsylvania’s energy efficiency law, Act 129, has reduced carbon pollution by 7 million tons in its first seven years. Utilities meet Act 129 targets by contracting with third parties to implement energy efficiency programs. Types of programs include high-efficiency appliance and lighting rebates, building retrofits, and more efficient industrial equipment, among others.[iii]
According to the Public Utility Commission, energy efficiency programs implemented from 2019-2016 delivered $6.4 billion in benefits to Pennsylvania electric customers. [iv] They also create good-paying local jobs. In 2018, energy efficiency accounted for over 68,000 Pennsylvania jobs.[v]
RGGI & ENERGY EFFICIENCY
The main effect of RGGI’s carbon market is to drive a shift power generation from carbon-intensive sources like coal to less-polluting generators like renewables, nuclear, and sometimes natural gas. Carbon pricing is not designed to encourage energy efficiency on its own.
However, energy efficiency programs can get a big boost from investment of RGGI proceeds. Across RGGI, states currently invest 55% of the proceeds generated by RGGI on energy efficiency programs.[vi]
ENERGY EFFICIENCY INVESTMENT IS A CRITICAL COMPLEMENT TO RGGI
Additional energy efficiency investments with revenues generated by RGGI or through existing mechanisms such as Act 129 would significantly reduce the cost of the RGGI for electric customers.[vii]
At the same time, energy efficiency investments can act together with RGGI to achieve greater carbon reduction goals. RGGI alone is not sufficient to meet the Governor’s target of 80 percent reduction in carbon emissions by 2050. The state’s Climate Action Plan combines a number of strategies to cumulatively meet the state’s emission targets – including both a price on carbon and expanded energy efficiency investments.[viii]
Moreover, expanding investments in energy efficiency creates additional economic benefits. The American Council for an Energy Efficient Economy found that removing limits on utility investment into energy efficiency could create 30,000 jobs and deliver $240 million annual net benefits to customers by 2025.[ix]
RGGI allowances should be invested in energy efficiency to supplement existing Act 129 programs. Revenues can be used to achieve higher savings targets, and to direct energy efficiency funds to strategies not currently included by Act 129. These might include expanded efforts in harder-to-reach sectors, such as low-income and small business customers, or strategies directly aligned with climate goals, such as decarbonization of buildings through the deployment of electric heat pumps.
Authorization of RGGI should be accompanied by an expansion of Act 129. Legislation currently introduced in the General Assembly, SB 232 and HB 193, expands Act 129 by removing the cap on utility energy efficiency investment and allowing for all energy efficiency investment that saves customers money.
Energy efficiency programs funded by RGGI revenues should not replace existing Act 129 investment – even if budget levels are equivalent. RGGI funding is dependent on the market price of carbon allowances and has a history of being reallocated to other state priorities. Businesses making energy management plans need certainty that energy efficiency programs will be available.
If RGGI revenues do not provide permanent, supplemental funding for energy efficiency or if RGGI authorization is not paired with an expansion of Act 129, then Pennsylvania’s participation in RGGI will do little to advance energy efficiency. That scenario would be a great missed opportunity to multiply to carbon reduction impact of the policy, and reduce energy costs for Pennsylvania electric customers.
[i] Executive Order 2019-07 Commonwealth Leadership in Addressing Climate Change through Electric Sector Emissions Reductions, available at https://www.governor.pa.gov/newsroom/executive-order-2019-07-commonwealth-leadership-in-addressing-climate-change-through-electric-sector-emissions-reductions/
[ii] RGGI, Inc, “Investment of Proceeds in 2016,” available at https://www.rggi.org/sites/default/files/Uploads/Proceeds/RGGI_Proceeds_Report_2016.pdf
[iii] Calculations by KEEA based on data from the Pennsylvania Public Utility Commission Statewide Evaluator, Phase I and II Final Reports, available at http://www.puc.pa.gov/filing_resources/issues_laws_regulations/act_129_information/act_129_statewide_evaluator_swe_.aspx
[v] Clean Jobs Pennsylvania 2019, E2, available at https://www.e2.org/reports/clean-jobs-pennsylvania-2019/
[vii] NRDC, Pennsylvania Needs PA Needs CO2 Limits—and Strong Renewables Policy, Too,” available at https://www.nrdc.org/experts/mark-szybist/pa-needs-renewable-energy-goals-well-carbon-limits
[viii] Pennsylvania Department of Environmental Protection, “Pennsylvania Climate Action Plan 2018,” available at https://www.dep.pa.gov/Business/Energy/OfficeofPollutionPrevention/climatechange/Pages/default.aspx
[ix] American Council for an Energy Efficient Economy, “Lifting the Cap: Estimating the Economic Impacts of Energy Efficiency Investments in Pennsylvania,” available at https://aceee.org/white-paper/lifting-the-cap-040419