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Research & Commentary: Opposing RGGI is Right Move for Pennsylvania Legislators

July 17, 2020

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

A bill that would block Gov. Tom Wolf from unilaterally signing Pennsylvania into joining the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program, has passed the House of Representatives and is now in the State Senate.

The bill “clarifies that the Department of Environmental Protection (DEP) does not have authority to join the Regional Greenhouse Gas Initiative … or similar state or regional greenhouse gas cap-and-trade programs unless authorized by the General Assembly.” Wolf signed an executive order in 2019 directing DEP to align commonwealth regulations with RGGI with a goal of joining the program by 2022.

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, Maryland, and Virginia. Cap-and-trade programs are systems that limit carbon-dioxide (CO2) 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 schemes point to California and the 10 northeastern states that make up the Regional Greenhouse Gas Initiative (RGGI) as examples of how these programs can be successfully implemented. In reality, cap-and-trade programs do little to reduce carbon dioxide emissions. Even worse, they are akin to regressive taxes. Cap-and-trade programs disproportionally burden low-income households, who are less able to afford higher energy and gasoline costs that these programs are designed to produce.

A Manhattan Institute study estimates the California cap-and-trade program raised residential electricity costs 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 Californians spend $2 billion to $8 billion extra on gasoline by 2021. It also estimates the increased gasoline prices will cost $150–$550 per household by 2026. Retail electricity prices in the Golden State are also 58 percent higher than the national average, an 18 percentage point increase over where they were before cap-and-trade was enacted in 2012.

According to the U.S. Energy Information Administration, retail electricity prices in the 10 RGGI states and California are currently 45 percent higher than the U.S. average. Pennsylvania’s retail prices, however, are 3 percent lower than the national average, thanks to the state’s abundant reserves of natural gas.

In a Cato Journal article released in 2018, David T. Stevenson of Delaware’s Caesar Rodney Institute writes there are “no added reductions in carbon dioxide 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.”

In a separate analysis, Stevenson found RGGI’s current auction prices for carbon dioxide allowances would raise electricity prices in the commonwealth by $412 million annually, or roughly $90 per Pennsylvania household. Projected increases in auction prices could raise this to $1.2 billion annually. 

The Industrial Energy Consumers of Pennsylvania (IECP) estimate the “minimal financial impact of RGGI on [Pennsylvania] is approximately … $275 million per year additional cost to electric generators.” IECP concluded the “impact to electricity prices and energy intensive manufacturing should be studied and fully understood before moving forward with RGGI.”

Pennsylvania does not need to join RGGI to reduce carbon dioxide emissions. In fact, the Commonwealth has already been reducing total CO2 emissions. According to a November 2018 report from the Pennsylvania Department of Environmental Protection, total statewide gross emissions (TSGE) have steadily declined from 2000 to 2015. The only year in which CO2 emissions increased was in 2013. In 2000, TSGE amounted to 324.79 million metric tons carbon dioxide equivalent (MMTCO2e). This decreased to 286.78 MMTCO2e in 2015.

Further, cap-and-trade programs are essentially regressive taxes and disproportionately impact lower-income residents. For example, the National Bureau of Economic Research finds cap-and-trade programs hit the poor the hardest, noting “households in the lowest fifth of the income distribution could shoulder a relative burden that is 1.4 to 4 times higher than that of households in the top fifth of the income distribution.” Stanford University found cap-and-trade programs and carbon dioxide taxes are regressive by nature “because polluting goods are mostly energy-intensive and take up a large percentage of a low-income person’s budget.”

While Wolf will most likely veto the bill if passed, the General Assembly should still send a message that joining RGGI is the wrong move for Pennsylvania residents. According to a 2020 WalletHub report, Pennsylvania already ranks 13th in the nation for energy costs. Joining RGGI would make energy costs in the Keystone State even higher. 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 information about RGGI and 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.

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.

 

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.

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