Greenhouse gas agreement makes a contribution

A multi-state compact aimed at reducing greenhouse gas emissions through a cap-and-trade system has contributed nearly $500 million to the Massachusetts economy and created almost 3,800 in-state jobs over the past three years, according to a new report.

“We’ve seen a program that worked well in wholesale power markets, and the use of the money has led to economic benefits in every state,” said Paul Hibbard, a former chairman of the Department of Public Utilities and a senior consultant at the Analysis Group, referring to the Regional Greenhouse Gas Initiative (RGGI).

“The bottom-line result is essentially that RGGI generates economic growth at a higher level than without the program in all the states” that participate, said Hibbard, an author of the study being described as a first-of-its kind review of the nation’s first market-based program to reduce greenhouse gas emissions.

The Analysis Group plans to present the findings of its report on Tuesday at the National Association of Regulatory Utility Commissioners conference in St. Louis.

The Boston-based economic consulting firm analyzed the economic impacts of the Regional Greenhouse Gas Initiative in all 10 participating states: Massachusetts, Connecticut, Maine, New Hampshire, Rhode Island, Vermont, New York, New Jersey, Maryland, and Delaware.

The report found that since 2009, RGGI has led to regional economic gains totaling $1.6 billion, including $498 million in Massachusetts. Though power plants lost an estimated $1.4 billion in revenue over the past three years because of reduced demand and the cost of purchasing carbon allowances, consumer bill reductions and investments in the clean energy sector more than offset the economic losses, according to the report.

Despite rising electricity costs in Massachusetts and New England, Hibbard said, investments in energy efficiency made possible through RGGI will save consumers $1.1 billion on electricity and $174 million on natural gas and home heating oil by 2021, reflecting an average savings of $25 for residential consumers, $181 for commercial consumers, and $2,493 for industrial consumers.

“Although CO2 allowances tend to increase electricity prices in the near term, there is also a lowering of prices over time because the states invested a substantial amount of the allowance proceeds on energy efficiency programs that reduce electricity consumption. After the early impacts of small electricity price increases, consumers gain because their overall electricity bills go down as a result of this investment in energy efficiency,” the report states.

Gov. Deval Patrick, with support from the Legislature, entered Massachusetts into the regional compact shortly after he took office in 2007, touting the voluntary, market-based regulatory program’s ability to reduce greenhouse gas emissions and provide funds for energy efficiency investments.

Under the program, the 10 mid-Atlantic and Northeast states that have agreed to cap and reduce carbon dioxide emissions sell power sector emission allowances through auctions and invest the proceeds in energy efficiency, renewable energy, and other clean energy technologies.

According to the report, power plant owners have spent $912 million from mid-September 2008 through September 2011 to purchase carbon allowances, giving states revenues to invest in energy efficiency, low-income heating assistance, and general fund budget expenditures.

In Massachusetts, Hibbard said, 94 percent of the $143 million gained through auctions has been spent on energy efficiency programs, while the rest went to support renewable power productions and municipal energy programs.

Though energy efficiency was the most popular way states spent RGGI funds, other states spent their resources differently. Maryland, for instance, put 64 percent of its revenue in low-income energy assistance, the report said.

Hibbard said the report makes no judgments on how states should spend the resources from carbon allowances, but said that investment in energy efficiency has proven to have the greatest positive economic impact.

“With efficiency, there are two effects on the economy. Money goes to the people selling the light bulbs and installing the insulation, but as load goes down, there’s a huge amount of disposable income, which doubly flows back into the economy,” Hibbard said. “Even though in all 10 states there was an economic benefit, it has been larger in Massachusetts.”

Because RGGI states are heavily reliant on oil, natural gas, and coal for electricity generation but responsible for virtually none of the production, the report states that reduced energy demand through the program allowed for $765 million less to be paid out-of-state for fossil fuels, keeping that money in the local economies.

The 10 compact states account for one–sixth of the country’s population and one-fifth of the nation’s gross domestic product, accounting for 11 percent of power generation and producing just 6 percent of all carbon emissions.

Hibbard said that RGGI’s ability to reduce energy consumption helped prices for power on the wholesale market at a benefit to consumers. A smaller load also allows for power demands to be met by less costly power plants, which are used first before more expensive plants are activated to meet energy consumption needs.

Though New Jersey was included in the Analysis Group report, Republican Gov. Chris Christie announced plans in May to pull his state out of the compact at the end of 2011. Despite investing nearly $30 million from RGGI into energy efficiency and renewable energy projects and tens of millions more to balance his state’s budget Christie called the program a “failure” and a “gimmick” that would not effectively reduce greenhouse gas emissions.

“RGGI does nothing more than tax electricity, tax our citizens, tax our businesses, with no discernible or measurable impact upon our environment,” Christie said at the time, committing his state to increasing its renewable energy portfolio and combatting climate change on its own.

Christie faulted RGGI for allowing power companies to easily meet their emission targets by taking advantage of cheaper natural gas prices, causing allowances to be auctioned for bargain prices.

Hibbard agreed that energy consumption took a dive during the recession, reducing the value of carbon allowances, but declined to say whether that meant RGGI should reevaluate the cap levels. “We don’t try to say what it means for the future,” he said.

He also said that states such as New Jersey, Delaware and Maryland, whose energy portfolios were more reliant on expensive fossil fuels like oil, saw a greater impact on electricity costs as a result of RGGI.