Retrospective Analysis of US Climate Policy Cap and Trade Policy Measuring Cost Effectiveness

Transcription

1 Retrospective Analysis of US Climate Policy Cap and Trade Policy Measuring Cost Effectiveness Sue Tierney, Analysis Group Resources for the Future Workshop Washington, DC September 19, 2013 BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTON

2 Overview of remarks Assessing cost-effectiveness through a rear-view mirror: lessons from RGGI Overview of Analysis Group s study of RGGI s first 3 years Lessons learned about assessing cost effectiveness Page 1

3 Study of the Economic Impacts of RGGI Foundation- Funded Study ( ): Only requirement from the funders: independent, with full editorial control by Analysis Group team Team: Paul Hibbard, Sue Tierney, Andrea Okie, Pavel Darling Electricity Journal Article ( ) Technical Advisory Group 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 Page 2

4 What the study is Economic study of actual revenues, actual programs, actual impacts Following the money through the electric sector and through the macro economy Measuring results What the study is not Review of carbon reduction benefits Review of environmental impacts Evaluation of need for a carbon control program Forecast of future program participation, effectiveness, results Assessment of the appropriateness of the cap level Analysis of carbon market Page 3

5 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) Page 4

6 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 Money Released to Programs Different states Different programs Different agencies Different tracking methods Different assumptions Initial Impact of Money Spent Impacts (+ and -) in electric sector and larger economy during first three years of RGGI ( ) Ongoing Impact of Money Spent Impacts in electric sector and larger economy ( ) Page 5

7 GE MAPS RFF Workshop: Retrospective Analysis of Carbon Policy Run the $ Through the Power System and the Economy Flow of Data and Modeling Outcomes Quarterly auction cycles RGGI Auctions MACROECONOMIC EFFECTS Purchases of CO2 Allowances by Fossil- Fuel Generators Auction Proceeds Spent by RGGI States Various Other Forms of Program Funding (Education, Direct Bill Assistance, Program Admin, etc) Dispatch Order of Changes for Some Power Plants Fossil Fuel Generators Increase Market Bids to Reflect CO2 Costs ELECTRIC SYSTEM EFFECTS $ Electricity Price Effects $ Decreased Consumer Demand Increased Generator Costs Changing Dispatch Order Lower Consumer Demand for Electricity 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 Net Revenue Loss for Generators Power Plant Owners Consumers Page 6

8 Two Timeframes: Compliance Period, Modeling Period Representation of RGGI Program Costs and Impacts through MAPS and IMPLAN Modeling 2021 RGGI Money Spent Impact of Program Measures (Reduction in load or increase in supply) Costs Incurred Generator Net Revenue and Consumer Spending Changes (Resulting from demand reductions and price changes) RGGI Money Spent Impact of Program Measures (Reduction in load or increase in supply) Costs Incurred Generator Net Revenue and Consumer Spending Changes (Resulting from demand reductions and price changes) RGGI Money Spent Impact of Program Measures (Reduction in load or increase in supply) Costs Incurred Generator Net Revenue and Consumer Spending Changes (Resulting from demand reductions and price changes) = IMPLAN effects = MAPS & IMPLAN effects = MAPS effects Page 7

9 11% Use of RGGI auction proceeds ($912 1% million) across the 10 states and in the 3 electric regions General Fund/State Government Funding Renewable Investment Direct Bill Assistance EE and other Utility Programs and Audits & Benchmarking Education & Outreach and Job Training GHG Programs and Program Administration 10 RGGI states 6 New England States EE and other Utility Programs and Audits & Benchmarking Education & Outreach and Job Training New York (NYISO) GHG Programs and Program Administration DE, MD, NJ (PJM) 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. Page 8

10 Value Added Multipliers: Average impacts within RGGI states Direct Bill Assistance Consumer Bill Reductions Program Administration and GHG Programs General Fund Education and Job Training Audits and Benchmarking EE - Commercial Retrofits, New Construction and Renewables Power Plant Owner Net Revenue EE - Residential Retrofits and New Construction Direct Value Added Indirect and Induced Value Added 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. Page 9

11 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 billion lower revenues to power plant owners (NPV) $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] Page 10

12 Economic Value Added (millions of $) RFF Workshop: Retrospective Analysis of Carbon Policy Total Economic Impact All RGGI States Direct, Indirect, and Induced Value Added (3% Public Rate) $2,500 $2,000 $1,500 Indirect & Induced Impacts $1.6 B $1,000 $500 Direct Impacts $- $(500) $(1,000) $(1,500) $(2,000) Power Plant Owner Net Revenue Consumer Bill Reductions RGGI Program Funding Total Notes: Figures represent dollars discounted to 2011 using a 3% public discount rate. Page 11

13 Observations about outcomes and analysis September 3, 2013 Page 12

14 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 Prevents transfer of that value to power plant owners Price impacts on electric markets the same either way Effect of economy, consumption, and fuel prices relative to original cap affected allowance prices and ultimate revenues for public use Page 13

15 How allowance proceeds are used affects their economic impacts States used funds in different ways, providing a wide variety of public benefits with some outside the electricity sector How funds are used does affect nature of 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 Direct bill assistance General fund contributions Education and job training Page 14

16 RGGI Reduces the 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 Reductions in net revenues for fossil-fueled facilities during first 3 years (when carbon prices are incurred) Increase in net revenues in first 3 years for all non fossil-fueled resources Effect of reduced consumption reduces revenues for fossilfueled and non fossil-fueled resources over twelve-year modeling period ( ) Page 15

17 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 Page 16

18 Timing Differences in Program Costs Versus Benefits Affects Results Costs and price impacts incurred immediately Investments that have positive impacts take longer Movement of money through state administrative channels introduces some delay (though use of RGGI proceeds relatively efficient) Investments can take time to produce benefits (energy efficiency benefits accrue over time; renewable generation takes time to construct, and produces output over long time period) Page 17

19 Additional slides September 3, 2013 Page 18

20 RGGI Proceeds (millions of $) RFF Workshop: Retrospective Analysis of Carbon Policy Auction and Direct Sales Proceeds 1, From left to right: Vermont Rhode Island Delaware Maine New Hampshire Connecticut New Jersey Massachusetts Maryland New York All RGGI States Downward trend in auction proceeds from results from: -Fewer allowances sold over time -Lower allowance prices over time $912 M Total 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. Page 19

21 How the states spent their auction proceeds: $912 m Maryland New York Connecticut Rhode Island Vermont New Jersey New Hampshire Delaware Maine Massachusetts General Fund Bill Assistance Renewables Educ Training GHG Programs Energy Efficiency Page 20

22 Summary of RGGI Proceed Spending 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 Connecticut $ - $ 37,667,961 $ 10,705,482 $ 337,290 $ - $ 3,020,516 $ 51,731,248 Maine - 22,831, ,398,768 27,230,517 Massachusetts - 133,960, ,324 3,108,774 17,083 5,093, ,505,072 New Hampshire 9,272,116 21,483,151-1,181, ,939 32,935,712 Rhode Island - 13,210, , ,155 14,269,538 Vermont - 6,496, ,630 6,599,444 New England Subtotal $ 9,272,116 $ 235,650,833 $ 11,030,806 $ 4,942,097 $ 17,083 $ 14,358,596 $ 275,271,531 New York $ 90,000,000 $ 163,660,609 $ 16,800,000 $ 8,600,000 $ - $ 48,588,106 $ 327,648,716 New York Subtotal $ 90,000,000 $ 163,660,609 $ 16,800,000 $ 8,600,000 $ - $ 48,588,106 $ 327,648,716 Delaware $ - $ 13,977,755 $ - $ - $ 1,663,210 $ 6,809,816 $ 22,450,780 Maryland 7,770,000 26,840,847 5,471,340 4,181, ,465,494 9,871, ,600,424 New Jersey 74,950,622-27,089,246-10,185,525 6,069, ,294,547 RGGI States in PJM Subtotal $ 82,720,622 $ 40,818,602 $ 32,560,586 $ 4,181,160 $ 127,314,229 $ 22,750,552 $ 310,345,751 All RGGI States $ 181,992,738 $ 440,130,044 $ 60,391,392 $ 17,723,257 $ 127,331,312 $ 85,697,254 $ 913,265,997 Source: Individual state reports and interviews. Note: NY dollars include interest earned in addition to proceeds from the RGGI auctions. Total Page 21

23 Consumer Bill Reductions (millions of $) RFF Workshop: Retrospective Analysis of Carbon Policy Consumer Bill Reductions (including non-electric savings), 3% Public Rate $1,800 $1,600 $1,400 $1,200 $1.3 B $1,000 $800 $757 M $600 $400 $200 $228 M $285 M $- Notes: Figures include GE MAPS outputs, non-electric benefit calculations, and capacity market gain calculations. Figures represent dollars discounted to 2011 using a 3% public discount rate. Page 22

24 Consumer Bill Reductions Consumer Bills - Electric Capacity Payment Changes Consumer Bills - Non- Electric Total Electric Consumer Bill Reductions Total Consumer Bill Reductions Connecticut $ (141,224,211) $ (6,650,690) $ 26,429,585 $ 147,874,900 $ 174,304,485 Maine (73,504,539) (7,236,029) - 80,740,568 80,740,568 Massachusetts (361,805,441) (30,649,188) 73, ,454, ,528,079 New Hampshire (27,946,341) (753,123) 3,259,024 28,699,464 31,958,488 Rhode Island (52,359,037) (1,847,570) - 54,206,607 54,206,607 Vermont (15,701,200) - 7,989,290 15,701,200 23,690,491 New England $ (672,540,770) $ (47,136,600) $ 37,751,348 $ 719,677,369 $ 757,428,718 New York $ (141,233,888) $ (1,387,285) $ 84,935,514 $ 142,621,173 $ 227,556,688 New York $ (141,233,888) $ (1,387,285) $ 84,935,514 $ 142,621,173 $ 227,556,688 Delaware $ (20,331,449) $ (1,547,964) $ 29,458,067 $ 21,879,413 $ 51,337,480 Maryland (69,312,006) (4,239,292) 21,491,696 73,551,298 95,042,994 New Jersey (130,601,288) (8,135,266) - 138,736, ,736,554 RGGI States in PJM $ (220,244,744) $ (13,922,522) $ 50,949,763 $ 234,167,265 $ 285,117,028 All RGGI States $ (1,034,019,402) $ (62,446,406) $ 173,636,626 $ 1,096,465,808 $ 1,270,102,434 Note: Figures reflect the use of a 3% public discount rate. Page 23

25 Power Plant Owner Net Revenue (millions of $) RFF Workshop: Retrospective Analysis of Carbon Policy Power Plant Owner Net Revenue Changes (using 3% public discount rate) $- $(200) $(400) $(600) $(800) $(1,000) $(1,200) $(1,400) $(1,600) $(1,800) - $1.6 B Notes: Figures include GE MAPS outputs, allowance true-up calculations, and capacity market loss calculations. Figures represent dollars discounted to 2011 using a 3% public discount rate. Page 24

26 Total Economic Impact Value Added and Job-Years Value Added 1 (millions of $) Employment 2 Connecticut $ 189 1,309 Maine Massachusetts 498 3,791 New Hampshire Rhode Island Vermont New England Subtotal $ 888 7,237 New York $ 326 4,620 New York Subtotal $ 326 4,620 Delaware $ Maryland 127 1,370 New Jersey 151 1,772 RGGI States in PJM Subtotal $ 341 3,676 Regional Impact 3 $ 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. Page 25

27 Susan Tierney Managing Principal Analysis Group 111 Huntington Ave, 10 th Floor Boston, MA September 10, 2013 Page 26