RGGI’s Economic Impacts, Findings from Analysis Group Report July 24, 2015 California Energy Commission IEPR Commissioner Workshop Paul Hibbard

RGGI Study, Compliance Period 2 July 2015 Page 2 Study Independent Power System and Economic Review Independent analysis of Compliance Period II ( ) Methodologically Consistent with review of Compliance Period I ( ) Analysis Group - full analytic/editorial control Funding Barr Foundation Energy Foundation The Thomas W. Haas Foundation at the NH Charitable Foundation Merck Family Fund Maine Environmental Funders Network Reviewers Michael J. Bradley, Chris Van Atten, Carrie Jenks, M.J. Bradley & Associates Jennifer Macedonia, Bipartisan Policy Center Rich Sedano, Regulatory Assistance Project

RGGI Study, Compliance Period 2 July 2015 Page 3 What the study is…  Economic study  …of actual revenues, actual programs, actual impacts  Following the money  …through the electric sector  …and through the macro economy  Measuring results What the study is not…  Review of carbon reduction benefits  Review of environmental impacts  Evaluation of need for a carbon control program  Forecast of future program participation, effectiveness, results  Assessment of appropriateness of cap level  Analysis of carbon market

RGGI Study, Compliance Period 2 July 2015 Page 4 Bottom line results:  Net positive economic impacts for:  the 9 RGGI states together, and for each state participating in RGGI  Across the region, the initial $0.98 billion in CO 2 allowance auction proceeds translates to $1.3 billion in net economic value  Economic value results from the various ways states spent auction proceeds:  Biggest economic bang for buck: energy efficiency program support  Economic value also created by other ways money recirculates in local economies (e.g., customer bill rebates, etc.)  Six years of RGGI implementation provides a host of data, information and lessons for states considering CPP compliance

RGGI Study, Compliance Period 2 July 2015 Page 5 Study Approach

RGGI Study, Compliance Period 2 July 2015 Page 6 Run the $ Through the Power System and the Economy… PROMOD IMPLAN Flow of Data and Modeling Outcomes

RGGI Study, Compliance Period 2 July 2015 Page 7 Power Sector Modeling – PROMOD Diagram of PROMOD Modeling Inputs and Outputs

RGGI Study, Compliance Period 2 July 2015 Page 8 Allowance Sale Revenues, Use of Proceeds

RGGI Study, Compliance Period 2 July 2015 Page 9 Auction and Direct Sales Proceeds

RGGI Study, Compliance Period 2 July 2015 Page 10 Use of RGGI auction proceeds ($983 million) across the 9 states and in the 3 electric regions

RGGI Study, Compliance Period 2 July 2015 Page 11 Economic Impacts

RGGI Study, Compliance Period 2 July 2015 Page 12 Overall economic impacts – 9 states $1.3 billion – economic value added in the region (NPV*) $0.98 billion– auction proceeds $0.45 billion – consumer savings (electricity, heating customers) (NPV*) $0.5 billion – lower revenues to power plant owners (NPV*) $1.27 billion– fewer dollars spent on out-of-region fossil fuel (NPV*) 14,000 jobs– jobs created * Using a 3% social discount rate

RGGI Study, Compliance Period 2 July 2015 Page 13 Total Economic Impact – All RGGI States Direct, Indirect, and Induced Value Added (3% Public Rate) $1.3 B

RGGI Study, Compliance Period 2 July 2015 Page 14 Observations

RGGI Study, Compliance Period 2 July 2015 Page 15  Mandatory, Market-Based Carbon Control Mechanisms are Functioning Properly and Can Deliver Positive Economic Benefits First mandatory market-based program meeting objectives while delivering economic benefits Program has integrated seamlessly in regional power markets States have retained full implementation authority, but have worked cooperatively for longer than six years through: Regional program design and state legal/regulatory processes Setting of cap; allocation of allowance pool Auctioning of allowances, monitoring of market Shared administration and governance Major program redesign, including tightening of cap

RGGI Study, Compliance Period 2 July 2015 Page 16  The Design of the CO 2 Market in the RGGI States Affected the Size, Character, and Distribution of Public Benefits Decision by RGGI states to auction allowances transfers emission rights from public to private sector at a monetary cost Retains value of allowances – and generates substantial revenue – for public use Prevents transfer of that value to power plant owners Price impacts on electric markets the same either way  The States Have Used CO 2 Allowance Proceeds Creatively – Supporting Diverse Policy and Economic Outcomes Use of RGGI revenues has allowed states to meet a wide variety of social, fiscal, and environmental policy goals Addressing budget challenges Assisting low-income energy consumers Restoring wetlands Promoting advanced energy technologies Assistance to municipalities and businesses through renewable and energy efficiency funding

RGGI Study, Compliance Period 2 July 2015 Page 17  How Allowance Proceeds Are Used Affects Their Economic Impacts States used funds in different ways, providing a wide variety of public benefits not captured in economic analysis However, how funds are used does affect economic impact Energy efficiency investments have strongest positive economic impact Reduces consumption (particularly for participants) Depresses wholesale prices (for all) Keeps impacts largely within electric sector Other investments have strong returns, transferring value to other sectors of the economy Direct bill assistance Education and job training

RGGI Study, Compliance Period 2 July 2015 Page 18  Positive job impacts with RGGI Results in thousands of jobs more than non-RGGI case 14,000 “job-years” Reflects direct, indirect, induced jobs Some may be temporary, others longer term All associated only with first three years of program investments (but occur throughout the study period) Jobs spread around economy, e.g. Personnel doing energy efficiency audits Installers of energy efficiency measures or renewable projects Trainers, educators

RGGI Study, Compliance Period 2 July 2015 Page 19  RGGI Reduces the Region’s Payments for Out-of-State Fossil Fuels Reduced generation (due to lower consumption) reduces payment for fuels Represents additional funds that stay mostly within state economies Reductions in net revenues for fossil-fueled facilities during (when carbon prices are incurred) Increase in net revenues during for all non fossil- fueled resources Effect of reduced consumption reduces revenues for fossil- fueled and non fossil-fueled resources over thirteen-year modeling period ( ) Improved competitive position for non-emitting resources

RGGI Study, Compliance Period 2 July 2015 Page 20  Six Years of RGGI Implementation Provide a Wealth of Data and Information for States Considering CPP Compliance Options Multi-state approach increases options and flexibility, and decreases total compliance costs State authorities/jurisdictions fully preserved Multi-state coordination highly successful despite political and economic diversity across participating states Common pooling and auction of allowances improves program efficiency, reduces administrative costs Single clearing price on carbon integrates seamlessly across adjoining power markets; no impact on power system reliability Retention of allowance proceeds benefits states States free to apply revenues to achieve diverse public policy objectives Reinvestment in energy systems mitigates impacts, generates economic benefits

RGGI Study, Compliance Period 2 July 2015 Page 21 Paul J. Hibbard Analysis Group 111 Huntington Avenue, 10 th Floor Boston, MA 20199