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Research & Commentary: Joining RGGI Would Raise Costs and Harm Low-Income Virginians

February 27, 2019

Cap-And-Trade Programs Do Little To Reduce Emissions, Act As Regressive Tax

Legislation that would prevent Gov. Ralph Northam or any other subsequent governor from unilaterally signing up the Commonwealth of Virginia into the Regional Greenhouse Gas Initiative (RGGI) without the consent of a two-thirds majority of both houses of the General Assembly has successfully passed both the House of Delegates and the Senate. The bill will now most likely be vetoed by Northam. This would be a mistake on the governor’s part.

RGGI, established in 2009, is an interstate cap-and-trade program made up of the New England states, along with New York, New Jersey, Delaware, and Maryland. Cap-and-trade programs are systems that limit carbon-dioxide emissions by establishing a specific amount of carbon dioxide businesses or other organizations may produce and allowing additional capacity to be bought from other organizations that have not used their full production allowance. If an entity emits above the cap without purchasing additional allowances, it will suffer a financial penalty. RGGI requires power plants larger than 25 megawatts in capacity to purchase emissions allowances at auction for each ton of carbon-dioxide emissions they produce. There are a limited number of allowances issued, and these are gradually reduced each year.

Advocates of cap-and-trade point to the RGGI states and California, which has its own program, as examples of how these programs can be successfully implemented. In reality, cap-and-trade programs do little to reduce emissions and work in a manner comparable to regressive taxes, disproportionally burdening low-income households, who have less of a cushion to absorb the higher energy and gasoline costs cap-and-trade programs are designed to produce.

Representatives of the State Corporation Commission (SCC) testified in the House of Delegates that RGGI could cost Dominion Energy Virginia (DEV) ratepayers between $3.3 and $5.9 billion over the first decade, increasing average electricity bills between $7 and $12 per month. The Department of Environmental Quality estimates participation in RGGI will cost $65 million in 2020. According to the U.S. Energy Information Administration, retail electricity prices in the ten RGGI states are currently 39 percent higher than the U.S. average, while in Virginia they are currently 12 percent lower than the U.S. average. As of February 2018, DEV reported residential electricity rates for their customers were 32 percent below RGGI state averages.

In a Cato Journal article released in 2018, David T. Stevenson of Delaware’s Caesar Rodney Institute writes there are “no added reductions in CO2 emissions, or associated health benefits, from the RGGI program. RGGI emission reductions are consistent with national trend changes caused by new EPA power plant regulations and lower natural gas prices. The comparison requires adjusting for increases in the amount of power imported by the RGGI states, reduced economic growth in RGGI states, and loss of energy intensive industries in the RGGI states from high electric rates.”

Further, RGGI states have experienced a 13 percent drop in goods production and a 35 percent reduction in the number of energy-intensive goods created. In five similar states, Stevenson found there was a 15 percent increase in goods production and only a 4 percent decrease in energy-intensive manufacturing. RGGI states also had the amount of their power imported from other states increase from 8 percent in 2007 to 17 percent in 2015.

“All states have shown energy efficiency gains,” Stevenson added. “The RGGI states saw a lower improvement in energy intensity at 9.6 percent compared to 11.5 percent for comparison states, so there appears to be no RGGI-related gain in overall energy efficiency. Wind and solar energy installation was slower in RGGI states, only increasing by 2.3 percentage points, while comparison states grew by 5.5 percentage points, more than twice as fast. RGGI grants for wind and solar power only accounted for about 1 percent of all the wind and solar power added by the RGGI states. The net fuel assistance help for low income households, 15 percent of all households, only added 1.6 percent to the federal Low Income Home Energy Assistance Program, or less than $5/year.”

Outside of RGGI, the results from California’s cap-and-trade program offer insight into why regional initiative would be a poor fit for Virginia. California’s program, which went into effect in 2012, requires greenhouse-gas emissions to be reduced 40 percent below 1990 levels by 2030 and 80 percent below 1990 levels by 2050, a target that will probably not be met. This program has helped force one million California households to spend at least 10 percent of their household income on energy costs, a situation experts refer to as living in “energy poverty.” In some lower-income counties, as many as 15 percent of households are classified as energy impoverished.

A Manhattan Institute study estimates the California cap-and-trade program raised residential electricity costs in the state by as much as $540 million in 2013. California’s Legislative Analyst’s Office (LAO) estimates cap-and-trade will increase gasoline prices by 15–63 cents per gallon by 2021, and by 24–73 cents per gallon by 2031. LAO projects by 2021 Californians will be spending $2 billion to $8 billion extra on gasoline. By 2026, it also estimates the increased gasoline prices will cost $150–$550 per household. Retail electricity prices in the Golden State are also 53 percent higher than the national average. Prior to the enaction of its cap-and-trade program, they were only 40 percent higher.

2018 Wallet Hub study found total energy costs in Virginia are some of the lowest in the country. The commonwealth would not improve on this standing by joining RGGI, which would do little to decrease carbon-dioxide emissions and cause considerable economic harm to low-income Virginia families. Cap-and-trade programs like RGGI simply aren’t needed; carbon-dioxide emissions are already dropping in the United States, a development that is primarily due to the recent hydraulic fracturing revolution, which many cap-and-trade supporters continue to oppose, and the switch from coal-generated electricity to natural gas.

The following documents provide more on cap-and-trade programs.

A Review of the Regional Green Gas Initiative
https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2018/2/cato-journal-v38n1-chapter-11.pdf
This Cato Journal article authored by David T. Stevenson of the Caesar Rodney Institute finds the Regional Greenhouse Gas Initiative has not shown any added emissions reductions or associated health benefits, has had minimal impact on energy efficiency and low-income fuel assistance, and has increased regional electric bills.

Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
https://www.pacificresearch.org/wp-content/uploads/2018/12/LegislatingEnergy_F_Web.pdf
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report finds that, collectively, these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.

Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
https://www.heartland.org/publications-resources/publications/less-carbon-higher-prices-how-californias-climate-policies-affect-lower-income-residents
This study from Jonathan Lesser of the Manhattan Institute argues California’s clean power regulations, including the state’s renewable power mandate, is a regressive tax that harms impoverished Californians more than any other group.

Five Myths of Cap-and-Trade
https://www.heartland.org/publications-resources/publications/five-myths-of-cap-and-trade
Articles supporting cap-and-trade programs rest on a number of fallacies. In this article by Todd Myers of the Washington Policy Center, Myers identifies and explores five persistent myths concerning cap-and-trade, including the belief that a cap on carbon dioxide emissions guarantees emissions reduction.

The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
https://files.texaspolicy.com/uploads/2018/11/27165514/2018-11-RR-US-Leads-the-World-in-Clean-Air-ACEE-White.pdf
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. Instead, the paper urges for the data to be considered and applied to the narrative.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
https://www.heartland.org/publications-resources/publications/climate-change-reconsidered-ii-fossil-fuels---summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).

The Social Benefits of Fossil Fuels
https://www.heartland.org/publications-resources/publications/the-social-benefits-of-fossil-fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.

Ten State Solutions to Emerging Issues
https://www.heartland.org/publications-resources/publications/ten-state-solutions-to-emerging-issues-2018
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2018 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Lindsey Stroud, a state government relations manager at The Heartland Institute, at lstroud@heartland.org or 312/377-4000.