Working Paper No. 45

A Review of the Regional Green Gas Initiative

By David T. Stevenson
August 10, 2017

The nearly decade-old Regional Greenhouse Gas Initiative (RGGI) was always meant to be a model for a national program to reduce power plant carbon dioxide (CO2) emissions. The Environmental Protection Agency (EPA) explicitly cited it in this fashion in its now-stayed Clean Power Plan. Although the RGGI is often called a “cap and trade” program, its effect is the same as a direct tax or fee on emissions because RGGI allowance costs are passed on from electric generators to distribution companies to consumers. More recently, an influential group of former cabinet officials, known as the “Climate Leadership Council,” has recommended a direct tax on CO2 emissions (Shultz and Summers 2017).

Positive RGGI program reviews have been from RGGI, Inc. (the program administrator) and the Acadia Center, which advocates for reduced emissions (see Stutt, Shattuck, and Kumar 2015). In this article, I investigate whether reported reductions in CO2 emissions from electric power plants, along with associated gains in health benefits and other claims, were actually achieved by the RGGI program. Based on my findings, any form of carbon tax is not the policy to accomplish emission reductions. The key results are:

  • There were no added emissions reductions or associated health benefits from the RGGI program.
  • Spending of RGGI revenue on energy efficiency, wind, solar power, and low-income fuel assistance had minimal impact.
  • RGGI allowance costs added to already high regional electric bills. The combined pricing impact resulted in a 13 percent drop in goods production and a 35 percent drop in the production of energy intensive goods. Comparison states increased goods production by 15 percent and only lost 4 percent of energy intensive manufacturing. Power imports from other states increased from 8 percent to 17 percent.
  • The regional program shifted jobs to other states. A national carbon tax would shift jobs to other countries. A better policy to reduce CO2 emissions is to encourage innovation rather than rely on taxes and regulation. The United States has already reduced emissions 12 percent from 2005 to 2015, more than any other developed country with a large economy, mainly through innovations in natural gas drilling techniques. There are many other opportunities to invest in innovation, for example, improved solar photovoltaic cells, more efficient batteries, small modular nuclear reactors, and nascent technologies that use fossil fuels without emitting CO2.

Download the Full Working Paper

David Stevenson is Director of the Center for Energy Competitiveness at the Caesar Rodney Institute. He prepared this working paper for Cato’s Center for the Study of Science. He thanks Pat Michaels and Jim Dorn for helpful comments on earlier drafts.