Wednesday, May 10, 2023

Regional Greenhouse Gas Initiative Would Lower Pennsylvania Emissions, Add to State Revenues, and Have Little to No Impact on Electricity Rates

A new report analyzes the expected impact on Pennsylvania emissions, power generation, revenue, and jobs, offering six central conclusions.  

In 2022, despite fierce opposition, Pennsylvania joined the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program designed to reduce carbon emissions from Northeastern and Mid-Atlantic power plants. Ongoing lawsuits have so far prevented the program from going into effect. But what impact would RGGI have on Pennsylvania if the program passes muster?

Researchers at the Kleinman Center for Energy Policy at the University of Pennsylvania and Resources for the Future (RFF) joined forces to find out.  A new report released by the two institutions analyzes the expected impact on Pennsylvania emissions, power generation, revenue, and jobs, offering six central conclusions:  

Joining RGGI reduces Pennsylvania’s electricity sector emissions to 84 percent below 2020 levels in 2030. Without RGGI, the state’s electricity sector emissions would be 52-49 percent below 2020 levels in 2030.

Combined Economic Effects in Pennsylvania

Emissions reductions are achieved with small or negative changes in retail electricity prices. Low allowance prices translate into a small increase (1 percent) in Pennsylvania’s retail electricity prices in 2030 under an annual 3-percent declining emissions cap. When the cap declines to zero by 2040, retail prices see a small decrease (-0.6 percent).  

Joining RGGI decreases coal generation and increases renewable generation in Pennsylvania. Joining RGGI causes coal generation and—to a lesser extent—gas generation to fall in Pennsylvania. Wind and solar capacity and generation increase. 

Joining RGGI decreases Pennsylvania exports slightly, but the state remains a major regional electricity exporter across all scenarios. The increase in renewable generation is not as large as the decrease in fossil generation, leading to a reduction in exports.  

Pennsylvania gains substantial revenue from joining RGGI. While allowance prices are low in 2030 if Pennsylvania joins RGGI, the state still gains $101 to $148 million from the auction of emissions allowances in that year—much of it from allowances sold to generators in other states.

Joining RGGI is unlikely to impact overall employment in the state. Pennsylvania would have the opportunity to use some of the program revenue to benefit communities impacted by the phaseout of coal. 

The team used RFF’s Haiku electricity model to see what would happen if Pennsylvania joined—or did not join—RGGI under two emissions scenarios: one in which RGGI’s emissions “cap” falls 3 percent per year, and one in which the RGGI cap falls at 3 percent per year through 2026 and to zero in 2040.  

The researchers compared their new analysis to modeling conducted before the Inflation Reduction Act passed in August 2022 to see how the new law may have changed potential outcomes. Both in studies before and after the Inflation Reduction Act, joining RGGI reduced Pennsylvania emissions and the state remained an electricity exporter.  But studies conducted before the Inflation Reduction Act did not expect RGGI to increase renewable generation; the new post-act modeling found that it would.  

The modeling assumed that there is no “banking” of allowances, and that emissions in each year equal the number of allowances issued. It also did not consider how allowance revenue could affect emissions, electricity rates, generator profits, and more, although spending decisions could influence these factors.  

Angela Pachon, Research Director at the Kleinman Center for Energy Policy noted “We hope that this new analysis will be useful to those who are deciding the fate of RGGI in Pennsylvania. There is an urgent need to address climate change, but we also need to make sure that we are moving forward in a way that is fair and efficient. RGGI has the potential to alter Pennsylvania’s energy landscape, and our study finds that, in general, the program could do so for the better by bringing revenues that the state could use to ensure an equitable energy transition.”  Maya Domeshek, RFF Research Associate added“RGGI has been around since 2009 and 11 states have so far joined the program. Our analysis of Pennsylvania reflects the unique standing of its electricity generation capacity and its broader power ecosystem. But there are still lessons to be learned for other states—namely, that the program appears to be effectively reducing emissions with a nearly unobservable impact on ratepayers.” 

RGGI allowance sales have the potential to bring in $101-$148 million to the state in 2030. The researchers note that state policymakers could direct the revenue in several directions: toward public priorities, toward ratepayers, toward electricity producers, or some combination of the three.  

Other states have directed revenue primarily to energy efficiency and bill relief for low-income households. Spending the revenues in energy efficiency could not only reduce electricity demand, power prices, and energy bills, but also create jobs, the authors note.

Pennsylvania could also spend the revenues in job training programs where workers in coal communities can gain the skills for employment in new clean industries. This could make those communities attractive to investors seeking to take advantage of Inflation Reduction Act-related credits for clean energy businesses in underserved and hard-hit coal communities.

Regarding jobs, the increase in renewable generation bolstered by the Inflation Reduction Act has the potential to offset jobs lost at fossil fuel plants. The researchers note that in the absence of RGGI, it is likely that coal plants will continue to close, and these jobs will be lost regardless as the power industry changes.  

Resources for the Future (RFF)
Press Release dated May 9, 202

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