The Regional Greenhouse Gas Initiative (RGGI) is a market-based, cap-and-invest greenhouse gas reduction effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia. RGGI has been a pioneer of climate policy since its founding in 2009, generating $5.6 billion in proceeds for participating states over the last 13 years.
Every five years or so, RGGI undergoes a program review, giving the participating states the opportunity to consider the program’s performance and make various changes including the equitable disbursement of the program’s proceeds. RGGI’s third Program Review is happening now and will last through 2023. In addition to securing effective greenhouse gas emissions reduction targets, Acadia Center is advocating that the current review process focuses on returning proceeds to the environmental justice (EJ) communities that host a major share of fossil fuel infrastructure but that have not received a proportionate share of clean infrastructure benefits. Together with EJ organizations and other partners across the RGGI footprint, we are also spotlighting improvements needed to RGGI’s market-based mechanisms to provide both greater resilience to the program and optimize emission reductions.
Ensuring Equitable Investment
The RGGI Memorandum of Understanding (MOU) is the framework for all states to participate in RGGI, signed by the governors of each participating state. However, the MOU does not impose any requirement for the states to guarantee the equitable investment of the monetary proceeds from the emissions auctions operated under the cap and trade program, which aims to stabilize and reduce emissions while remaining consistent with overall economic growth and a safe and reliable electric power supply. Most of the participating states lack procedures to ensure RGGI-funded investments deliver meaningful and proportional benefits to overburdened and underserved communities. Many states invest RGGI proceeds into clean energy projects that, while effective in reducing climate pollution, fail to address inequities that are a legacy of dirty energy as well as inequities that continue to arise as part and parcel of the clean energy transition. In other cases, RGGI funds have been used to fill state budget gaps, addressing neither climate nor justice imperatives.
During the second RGGI Program Review in 2017, Acadia Center, environmental justice organizations, and many other partners from across the region submitted comments to RGGI1 calling on the RGGI states to require investments of RGGI auction proceeds in environmental justice communities. It has been five years since those comments were submitted, yet the RGGI program still requires no commitment from participating states to invest proceeds equitably. Since the time of these comments in the second Program Review, programs across the US have committed to environmental and energy justice including California’s 35% minimum from cap-and-invest, the federal Justice40 framework, New York’s 40% commitment from Climate Leadership and Community Protection Act (Climate Act) and New Jersey’s new EJ law. But the equitable investment of auction proceeds accrued from RGGI remains a glaring work in progress for the RGGI program and should be the priority for improvement in the third Program Review.
Soliciting and Incorporating Input from Environmental Justice Communities
The Program Review offers another important chance for the RGGI states to make a detailed assessment of how RGGI funds are being invested in communities and work to make those investments more equitable, both through RGGI itself and through accompanying state laws. As an initial matter, RGGI must offer ample opportunity for public comment throughout the Program Review while reaching out to capture the input of key communities. The second Program Review offered a range of opportunities for participation from residents, community-based organizations, and environmental justice advocates. It is even more important for the third Program Review to incorporate the voices of communities, both through public comment opportunities and concerted community outreach. The updated Program Review timeline contemplates ongoing engagement with communities on environmental justice and equity in fall 2022, continuing through fall 2023. This outreach and engagement should be tailored to increase the understanding of the program’s achievements to date while addressing the full scope of concerns that environmental justice communities may have about the market-based cap-and-invest program, including its impacts, its mechanisms, and how its proceeds are spent. RGGI should work to increase participation by scheduling meetings at multiple times of the day, involving an interpreter in public hearings to alleviate language barriers, and translating materials into multiple languages. Additionally, the RGGI program must focus presentations on the EJ impacts of RGGI to date and investigate potential solutions, as well as make provisions to track comments and suggestions from communities of color and environmental justice communities on program changes.
Tackling Emissions Reductions with Reforms to the Cost Containment Reserve (CCR), Price Floor, and Emissions Containment Reserve (ECR)
To limit emissions from the electric power sector, RGGI sets an annual carbon dioxide emissions cap from all RGGI states. More recently, participating states have set individual, ever-more aggressive emission reduction targets to decarbonize the electricity sector. By 2050, most participating states will be striving for net-zero emissions. RGGI’s regional cap and market mechanisms have yet to reflect these targets. The RGGI cap and market mechanisms need to be restructured to assist states in achieving their ambitious state-level targets for decarbonization of the power generation sector.
RGGI’s market mechanisms are outlined by the Model Rule, a set of prescribed rules that serves as the framework for the CO2 Budget Trading Program in each RGGI state. The Model Rule has undergone recurrent revisions since it was first created, and mechanisms such as the Cost Containment Reserve (CCR), Price Floor, and Emissions Containment Reserve (ECR) should be highlighted for further reform for as part of the third Program Review.
RGGI’s Cost Containment Reserve (CCR) is a mechanism that provides the market with a ceiling price. This means that when the price of emissions allowances in an auction carried out by RGGI is equal to the CCR price, RGGI will release additional emission allowances into the market. In practice, when the trigger price for the CCR is low, the CCR can become a mechanism for polluting facilities to avoid aggressive emission reductions. The CRR has been triggered three times in RGGI’s history and the last auction that triggered the CCR was in December 2021. However, the last three auctions have narrowly avoided the CCR trigger by only a few cents, highlighting the potential future significance the CCR has in dictating the volume of emissions allowances that are released. Acadia Center advocates substantially raising the CCR trigger price, as doing so would be a step towards reducing the power sector GHG emissions in line with state-level emissions reduction targets.
Similarly, the RGGI Model Rule sets a price floor for allowance auctions, which is the minimum price for an allowance. In 2022, the Price Floor is $2.44 per ton, with a 2.5% rate of increase each year. In RGGI’s 57 auctions since 2009, the Price Floor had only been reached 10 times with the last time being almost 10 years ago, in December of 2012. RGGI should increase the Price Floor and establish a more ambitious rate of increase closely aligned with market prices in the most recent years’ auctions. This reform will ensure that prices will stay more consistent and RGGI states will still have the proceeds necessary to encourage stable investments in renewable electricity and energy efficiency, to grow these resources and contribute to overall decarbonization.
Since January of 2021, RGGI has implemented an Emissions Containment Reserve (ECR), a mechanism to withhold up to 10 percent of emission allowances when the market price falls below the trigger price. However, it is essential to ensure that states can make use of this mechanism in an equitable and fair manner. Acadia Center recommends that RGGI increase the ECR trigger price to reflect the aggressive emission reductions the states need to achieve. The ECR trigger price, which is currently $6.42 per ton, will only rise to $11 in 2030, a figure far below this year’s average market price. For the past three auctions, the ECR price has been twice the market price and therefore has been rendered almost irrelevant, failing to reduce emissions as designed.
In its advocacy with the RGGI states and with RGGI, Inc., Acadia Center works with a coalition of environmental justice organizations, community-based groups, environmental and energy policy organizations, and other partners from across the RGGI footprint. Our shared objectives are to achieve more ambitious emissions cap goals, improvements in air quality – especially in overburdened and underserved communities – and a commitment from all participating states to ensure equitable investment of RGGI proceeds in environmental justice communities. We are also currently working to update our 2019 report entitled “The Regional Greenhouse Gas Initiative: Ten Years in Review” to include information on RGGI’s successes and opportunities from 2019 to the present. Please speak to your state energy leaders about how RGGI can better serve you and your communities – and stay tuned to the Acadia Center website for more information.
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