Comments Off on RGGI’s Program Review Offers a Chance to Revisit Local Air Quality Needs
While there is substantial evidence that the Regional Greenhouse Gas Initiative (RGGI) has been very successful at reducing carbon and other emissions across the multi-state region, there is still important work to be done to document and ensure air quality improvements at the local level — especially in frontline communities that either host fossil-fuel power plants or are downwind from those plants. Since the RGGI program started 12 years ago, can we better document how air quality has changed in communities that may be affected by the continued operation of fossil energy generation? And in communities where more needs to be done, could RGGI help support local air quality improvements through expanded monitoring?
The RGGI members — 10 states across New England and the Mid-Atlantic — have a history of using a periodic, comprehensive program review to assess RGGI’s operations and ensure its economic, environmental, and equitable performance. As awareness grows of the disproportionate public health impacts in frontline communities from COVID-19 and air pollution, and as Mid-Atlantic and New England states increase their focus on ensuring greater equity in environmental programs, the 2021 program review is an ideal opportunity to consider these questions.
RGGI’s Consumer Benefit Allocation
The RGGI framework is ideally suited to address air quality concerns in frontline communities. The original agreement to develop RGGI, a 2005 memorandum of understanding (MOU) signed by member states, includes a provision for a “comprehensive review” of all aspects of the program. In 2005, RGGI states also agreed to allocate at least a quarter of their allowance revenues for “consumer benefit” or “strategic energy” purposes, which they defined broadly: “to promote energy efficiency, to directly mitigate electricity ratepayer impacts, to promote renewable or non-carbon emitting energy technologies, and to stimulate or reward investment in the development of innovative carbon emissions abatement technologies.”
Initially spurred by the consumer benefit allocation idea, RGGI states have, in fact, invested a far greater amount of their revenues in complementary policies. They have directed nearly $3 billion in proceeds from the quarterly allowance auctions back into state economies, focusing on policies that complement the program and contribute to its success.
The Need for Air Monitoring in Overburdened Communities
The 2021 program review is a good time to better understand the air quality impacts on electricity ratepayers in frontline communities. And one useful first step would be to enable better air quality monitoring at the local level.
We recommend starting with monitoring fine particle pollution that is released from unburnt fuel and from other pollutants like nitrogen and sulfur oxides which have their own health impacts. While there are other pollutants that could be monitored by more complicated and expensive technology, starting with particulates could provide a good idea of the levels of pollution coming from local power plants and from other sources like transportation or other manufacturing plants.
Fine particles are also referred to as “PM2.5,” because EPA’s public health standard addresses particles that are 2.5 microns or smaller. To get a sense of just how small that is, the diameter of a human hair is around 50 microns. The health impacts of particulates are extremely serious. More than 25 years ago, PM2.5 was demonstrated to cause premature mortality. Around 100,000 Americans per year die from fine particle pollution.
In addition, a reason for disproportionate effects of the coronavirus on certain subgroups of the public appears to be related to their long–term exposure to various types of air pollution including fine particles. In spring 2020, public health researchers at Harvard issued a study in which they found this connection between exposure to increased concentrations of PM2.5 and increases in COVID-19 death rates.
Simply investing in monitors, however, will not be enough. States will need to work with community groups to define affected communities and those locations most in need of additional monitoring. Focusing on those adjacent to power plants in RGGI’s jurisdictionmay be a start.
Today, all state and local health agencies are required to maintain monitoring networks, comprised in part by what are known as “federal reference monitors” that meet U.S. Environmental Protection Agency (EPA) requirements for equipment, quality assurance, control and location. A typical continuous PM2.5 monitor is costly and requires ongoing maintenance, an outlay of over $20,000 per year per monitor.
There are good alternatives, which are lower-cost though admittedly somewhat less accurate. A PurpleAir monitor, for example, costs around $300 and needs to be calibrated against a federal reference monitor. PM2.5 is one pollutant that a PurpleAir monitor is designed to measure. The EPA has studied their use and calibrated them with good success.
In Denver, Colorado, the Love My Air project is an example of the type of project that would be worthwhile in the RGGI region. It is a partnership between the Colorado Department of Public Health & Environment, Denver Public Schools (over 20 of them), and the Tri-County Health Department. The City of Denver has indicated that, while there are multiple factors that influence exposure to air pollution, “schools are an ideal intervention point for sensor deployment, education and empowerment.”
Monitoring that relies on affordable technology like PurpleAir would help in quantifying the burden of particle pollution in communities. It could be used to expand state or local monitoring networks and help citizens learn more about their air quality. Support for monitoring PM2.5 would also help identify whether that pollution stems from a RGGI facility or others nearby pollution sources.
As the RGGI states undertake a comprehensive program review, of all aspects of the program, beginning this year, we encourage them to consider supporting PM2.5 monitoring. It could help RGGI states demonstrate benefits beyond reduction of carbon dioxide emissions, and better ensure that investments made with the program’s revenues are benefitting electricity ratepayers in all the communities within the region.
Comments Off on A Trans-Atlantic Take on Building Efficiency: Lessons from Germany and New England
Despite being an ocean apart, Germany and New England are similar in many respects. More than 75% of energy used for residential heat in both places relies on natural gas or heating oil. And both have adopted ambitious energy and climate goals — Germany committing to cutting carbon emissions from buildings by two-thirds below 1990 levels by 2030, and the New England states largely adopting targets calling for reductions in the range of 70-80% below 1990 levels by 2050. Both are also global leaders in energy efficiency, evident in their similar transition away from fossil fuel heating.
We start out by recognizing the importance of policy support for decarbonizing building heating — first, because most of the buildings in New England and Germany that will be occupied in 2050 have already been built; and second, because this activity, by its nature, will be disruptive for building occupants, subject to high transaction costs and relatively expensive.
Both Germany and the New England states have deployed a variety of policy approaches to drive decarbonization of space heating. Described in detail in the paper, they include:
Building codes: European Union Member States must establish national building codes set by the EU’s Energy Performance of Buildings Directive. Builders in the New England states likewise must meet building energy performance specified by the International Energy Conservation Code for residential buildings. Germany and one of the New England states, Maine, have also adopted time-of-sale energy performance disclosure standards for buildings. Furthermore, a number of New England states have adopted voluntary net-zero energy building standards.
Appliance standards: Heating systems in Germany are subject to EU regulation under the Ecodesign Directive, which sets minimum performance standards for boilers and heat pumps. The U.S. Department of Energy and the Environmental Protection Agency periodically update appliance standards for furnaces and water heaters, enabling purchasers in the New England states and elsewhere to capture significant energy savings. The U.S. Department of Energy’s standards require appliances to meet certain efficiency levels, while the Environmental Protection Agency’s voluntary Energy Star program encourages even greater efficiency.
Weatherization programs: Every major study of pathways for heat decarbonization demonstrates the need for substantial improvements in building shell integrity. Germany’s most prominent and long-standing building energy efficiency finance efforts are administered by the public bank Kreditanstalt für Wiederaufbau, which provides low-interest loans and grants for energy-efficient refurbishment and construction, including projects designed to integrate with the latest building codes. The New England states are supported by the federal Weatherization Assistance Program (WAP), which enables low-income families to reduce their energy bills by making their homes more energy-efficient. A number of New England states have developed programs to augment or reinforce low-income WAP funding and expand building refurbishment efforts.
Low-carbon and renewable heating programs: International experience shows that replacing fossil fuel-based heating with low-carbon alternatives can also stimulate demand for both heat pumps. Germany’s Market Incentive Program is the central funding mechanism for expanding the use of renewable energy in the building sector, and for including technologies like heat pumps. New England states have also promoted electrification by providing incentives for heat pumps with other energy efficiency measures.
Energy efficiency resource standards: Energy efficiency resource standards (EERS), or “energy efficiency obligations” as they are known in Europe, set savings targets that retail distributors of electricity or natural gas must meet, and have contributed to significant carbon emissions reductions in the New England states. An EERS typically requires an annual percentage reduction or cumulative reduction of energy over a given time period, whether measured in kilowatt hours for electricity or therms for natural gas. Greater adoption of electrification, however, which increases electricity use while decreasing carbon emissions, may require these metrics for EERS to be revised.
Carbon revenue recycling: Secure funding of building decarbonization programs is one key to ensuring their effectiveness. Germany and nearly all of the New England states allocate over half of the carbon allowance auction revenues from their cap-and-trade programs to cost-effectively support end-use energy efficiency and decarbonization goals. Germany’s revenues come from the European Union’s Emissions Trading System, while New England participates in the Regional Greenhouse Gas Initiative. Both places have found that this investment yields multiple dividends: securing additional emissions reductions, lowering economic and societal decarbonization costs, providing a wide range of non-energy benefits (including improvements in health, comfort, air quality, public housing and welfare costs, job creation and economic growth), and supporting the political processes associated with tightening the emissions cap.
One key insight in Decarbonizing Heat in Buildings is that retrofitting buildings for energy and carbon reductions is challenging because it depends on affirmative decisions made by millions of individuals, most of whom actually live in the buildings that require improvement. Many market barriers must be overcome, so well-designed, customer-focused programs are needed. Even the best programs have to address information needs, trust issues, financing, and quality assurance issues.
The use of carbon revenues to fund building efficiency programs makes sense, and experience in both regions is positive, supporting, for example, pivotal low-interest loan programs for driving deep retrofits in Germany. The explicit link to building codes is a forward-looking approach to policy integration. Energy efficiency resource standards in Europe and New England are also a key policy instrument. With revision, they can readily encourage electrification and will continue to be one of the most effective and economically efficient ways of funding end-use energy efficiency.
Both regions recognize the importance of policy continuity and innovation to support the market for low-carbon heating. Both end-use customers (building owners) and efficiency and heating contractors need stable programs and funding in order to identify, plan, market, and deliver renovations. Germany and New England have long-standing policies and long-term targets for decarbonization in place, but policy innovation is required to reap the benefits of efficiency programs as technologies and markets continue to evolve. The improving capabilities of heat pumps is a prime example, but by no means the only one. Not surprisingly, Germany and New England have both modified their policies over time to account for technological improvements.
Finally, Decarbonizing Heat in Buildings draws several conclusions regarding electrification. First, electrification requires a holistic approach to designing building codes and appliance standards. Electrification also requires programmatic assistance to retrofit heating appliances. Experience in both Germany and New England shows that, without this support, uptake rates remain low. These lessons will be valuable not only for policymakers in New England and Germany, but also for those working on policy design and implementation elsewhere.
Comments Off on Gilets Jaunes, RGGI, and Recommendations for China’s Carbon Reduction Policies
The gilets jaunes (“yellow vests”) protests in France have highlighted the critical role that consumers must play in defining how we decarbonize our economies. In light of this and similar setbacks for action on climate change, such as the November 2018 defeat of a carbon tax proposal in the U.S. state of Washington, it might be tempting to conclude that the public is unwilling to pay to reduce greenhouse gases. But this would be wrong. The gilets jaunes and Washington voters are not opposed to actions that reduce greenhouse gas emissions. Rather, they are against what they see as bureaucratic impositions on their behavior for which they will not receive any economic benefits. The two events differ in factors that influenced the consumer behavior: In France, people thought the government was acting bluntly without any opportunity for public input, while well-financed opponents in Washington painted a picture of “secret government” actions that proponents of the carbon tax were unable to overcome. These two events share an outcome that reflects the importance of consumer input to any decisions on how greenhouse gas emissions should be reduced.
In contrast to the events in France and Washington, the successful, decade-old Regional Greenhouse Gas Initiative (RGGI) in the U.S. suggests an alternative conclusion.
China’s policymakers don’t need to choose between meeting their carbon goals and protecting consumers. RGGI shows that carbon prices & complementary policies cost-effectively reduce emissions, save consumers money, and strengthen the economy.
China’s Market-Based Approach Consistent with Best Practices
China is implementing the world’s largest greenhouse gas mitigation program. Its decision to focus first on the power sector makes sense. This sector is well-regulated, operates continuous emissions monitoring systems to ensure compliance, and consists of a number of affected sources (i.e., fossil-fuel-fired power plants) that is relatively small compared to other sectors. China initiated its carbon trading program concurrently with efforts to move to market-based electricity systems like those in Europe and the United States. These efforts bear resemblance to those in the RGGI states, as many of them were in the process of restructuring their electricity sector to market-based systems at the time RGGI was being designed.
RGGI’s market-based approach, which has reduced CO2 emissions from the power sector in the northeastern United States by more than 50 percent, offers a model for reducing carbon while protecting consumers. Based on that experience, we offer four program design principles to help guide China as it implements its carbon trading program.
By transparency, we mean that all processes and procedures are open, welcome public comment and input, and are consistent, routine, and replicable. Transparency is essential to ensure that:
the value of the reported carbon price is based on actual emissions,
the levels of reported emissions are accurate, and
the program administration processes are replicable, consistent, and predictable.
RGGI ensures transparency by relying on an independent program administrator and third‑party verification of auctions and revenues. Independent and third-party mean that the organization has no connection to the government or government influence. The program administrator and third-party entities providing verification also adhere to the transparency principles of openness, replicability, and consistency. The auctions are sales of emissions allowances conducted each calendar quarter. An emissions allowance is equal to one ton of CO2. RGGI’s inclusion of routine reviews to assess program experience and to make possible adjustments also enhances overall acceptance and trust.
China can overcome concerns about the transparency and accuracy of its reported data, such as the recent upward adjustments to the actual quantity of coal consumed, by improving emission monitoring, reporting, and record keeping for sources subject to the carbon trading system. These steps will improve acceptance of the relevant data and provide support for the value of the currency traded. Adhering to the transparency principle will also improve the credibility of China’s city and provincial trading platforms.
Design for Flexibility
All trading programs are imperfect at the outset. Governors, mayors, and other elected officials are not usually familiar with market-based environmental programs and worry that any cap will lead to economic harm or decrease the economic competitiveness of their state or province. These political considerations have led to initial emissions caps that are not binding. For example, RGGI was criticized initially for being weak and for having a “loose” emissions cap that was several million tons higher than actual emissions. However, the design of RGGI is flexible. It calls for periodic reviews to adjust emissions caps and their trajectory based on feedback from actual experience.
As a result, the first program review in 2012 reduced the emissions cap by 45 percent based on actual operating experience and evaluation. That review also established cost-containment allowance reserves to protect consumers and businesses should the greenhouse gas prices reach a designated ceiling for a particular year. The 2016 program review determined that actual emissions continue to remain below the level of the cap, that complementary energy policies also helped to reduce criteria pollutant emissions like PM2.5 and NOX, and that participating states have made long-term (2030 to 2050) commitments to sustain a trajectory of emissions reductions.
China’s initial program design is inflexible, as each boiler is categorized by the fuel it burns or the type of boiler. This design is complex to administer and works at cross purposes with efforts by China’s electricity grid operators that are developing a system where boilers are dispatched based on their costs of operation and fuels. In a market-based program, one ton of CO2 (or greenhouse gases) has the same effect on the climate and air pollution, regardless of its source. One ton of CO2 in the RGGI region is treated the same as every other ton—no matter the source or the combustion technology that produced it. The next phase of China’s program should focus on streamlining the categories into one system that includes all combustion sources. Streamlining the categories will also better serve the way in which China’s electricity grid will be operated in the future.
Cap and Invest to Protect Consumers
Once a greenhouse gas cap is put into effect, the affected electricity generators will include the “carbon adder”—that is, the cost (or value) of the carbon they emit—in their operating costs. RGGI’s designers understood, in part on the basis of EU experience, that a carbon cap-and-trade program gives the holder of carbon allowances a “right” to emit carbon dioxide. That right has value and it causes the market price for electricity to rise. Giving the allowances to emitters for free is, in effect, giving them money for nothing in exchange. That money, of course, comes from consumers, who are paying higher prices for electricity. In order to capture a portion of that value for consumers, the RGGI designers decided to sell or auction 100 percent of the program allowances to generators. The RGGI then states invest, or “recycle,” this revenue in programs that (1) directly benefit consumers (protection for vulnerable customers), (2) reduce energy bills through end-use energy efficiency, and (3) further reduce CO2 emissions through increased renewable energy generation. These investments have also stabilized the region’s electricity rates while states outside the region have raised them.
China could take the next step during phase two of its carbon trading program by auctioning allowances that are now given away for free. The next phase should also consider how complementary energy policies like renewable energy development and energy efficiency can be implemented to increase emissions reductions and make them more cost-effective.
Capture Synergy Between Energy and Environmental Policies
When planning for the RGGI initiative began at the end of 2002, northeastern states had a 35‑year history of cooperation on environmental issues. The participation of energy regulators in the RGGI working group brought new and important perspectives about how environmental policies might constrain or help emerging electricity markets following industry restructuring efforts in the late 1990s and early 2000s. These perspectives helped lead to the decisions to auction all RGGI allowances and to use sound environmental policies to reveal how energy efficiency and renewable energy investments could accelerate the projected CO2 reductions and achieve them at lower costs. The good working relationships that developed between environmental and energy regulators paved the way for future collaboration on several issues, including implementation of energy efficiency programs, electricity grid procedures for diesel generators, and air quality control measures. And, the positive RGGI experience encouraged regulators to include more economic sectors in their efforts to reduce greenhouse gas emissions, leading to the announced regional CO2 reduction program for the transportation sector.
The first annual assessment of China’s carbon trading program, performed in 2018, brought together individuals from several agencies, including the Ministry of Ecology and Environment (MEE) and National Development and Reform Commission (NRDC), as well as international experts. These forums should be held regularly. Many measures that reduce greenhouse gases also improve air quality. Future forums could also discuss how to synchronize measures to reduce all air pollutants. The reorganization of MEE has streamlined coordination of environmental policy, by moving staff who were previously assigned to NDRC’s climate change group. Post-2020, the next phase of China’s carbon trading system would benefit from analysis of how the addition of transport sector emissions could accelerate the adoption of clean energy vehicles and ensure that continued progress toward electricity markets also helps to improve air quality.
Follow Proven Best Practices
The gilets jaunes and Washington events paused progress on reducing greenhouse gas emissions. France agreed to delay the scheduled fuel taxes while Washington is now considering legislation that would adopt much of the program that was included in the November 2018 referendum. These jurisdictions, and others that are considering actions to reduce emissions, would be well-advised to also include the best practices from RGGI in their programs.
RGGI’s success derives from several excellent components that can be adapted to China’s carbon trading program as decision-makers develop a phase two and consider expansion to other economic sectors. China’s central planning model does not necessarily mean that one size fits all. China’s economic diversity and geographic breadth allow for the trial of innovative concepts at a smaller scale, such as a large city or province, first. Then, lessons from a pilot can be integrated as the program is scaled up or expanded to other sectors.