The Northeast’s Electricity Bills Have Dropped $460 Million Since They Started Paying for Carbon

A regional cap-and-trade program has added $1.3 billion in economic activity to nine New England and Mid-Atlantic states since 2011, while decreasing their carbon emissions by 15 percent, according to independent analysis released Tuesday.

In addition to stimulating the economy and reducing carbon, the Regional Greenhouse Gas Initiative (RGGI) has also reduced the cost of electricity for consumers, saving residential, businesses, and public users $460 million, the report from the Analysis Group found.

These benefits mean that RGGI (pronounced “reggie”) could be a model for other states looking to reduce carbon emissions under the Environmental Protection Agency’s Clean Power Plan, set to be released next month.  The Clean Power Plan requires states to lower carbon emissions from the electricity sector, but lets states choose how they reduce those emissions.

“The nine New England states’ experience with RGGI can provide other states with valuable lessons for how one might comply with the CO2 regulations included in the Clean Power Plan,” Andrea Okie, a report author, told ThinkProgress.

Under the RGGI plan, nine states — Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont — have reduced the amount of carbon allowed from electricity producers by requiring them to buy a credit for every metric ton of carbon they emit.  There are only a limited number of permits, which are put up at auction every quarter.  The states use the proceeds from the auctions to invest in further carbon reduction programs, such as efficiency retrofits and renewable energy development.  (New Jersey initially participated, but withdrew in 2011 under Republican Governor Chris Christie).

“From an economists’ perspective, directly putting a price on carbon the way RGGI does is the most efficient way to regulate carbon,” Okie said.  In fact, the program has been so successful that after a 2011 review, the states agreed to lower the overall emissions cap.

But as a macro-economic driver, the key to RGGI’s success has been the reinvestment of money from the carbon permit auction, Okie said.  So far, the states have spent 59 percent of the funds on energy efficiency; 15 percent on renewable energy projects; 13 percent on bill-payment assistance to energy consumers; 12 percent on other greenhouse gas programs and program administration; and 1 percent on clean technology research and development, the report found.

For example, investing in efficiency programs — such as weatherizing houses — reduces the amount of electricity used.  But that’s not actually why bills are going down.  The decrease in electricity demand actually reduces the overall price of electricity.  That means the costs go down for everyone, not just someone who installed new, efficient windows.

So while opponents of the Clean Power Plan say that it will raise electricity prices for consumers and depress the economy, putting a price on carbon can actually have the opposite effect.

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