Does the Regional Greenhouse Gas Initiative's recent move to scale back on offset allowances make it more effective at reducing emissions? During today's OnPoint, Sue Tierney, managing principal at the Analysis Group and a former assistant secretary for policy at the Department of Energy, discusses the latest move by RGGI and explains why she believes the cap-and-trade system could be a job and revenue creator.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Sue Tierney, managing principal at the Analysis Group and a former assistant secretary for policy at the Department of Energy. Sue, thanks for coming on the show.
Sue Tierney: Thanks for inviting me, Monica.
Monica Trauzzi: Sue, the Regional Greenhouse Gas Initiative has decided to cut the number of allowances that companies can purchase to offset their emissions. Offsets have been a key sticking point for critics of RGGI, so does this move sort of make the system more credible overall?
Sue Tierney: It might. There's a practical reason though I think that the states have decided to retire some of the allowances and that is that because of the economy and the conditions for electricity demand, there really was an oversupply of allowances at the end of a three-year period. And so I think in some sense their starting afresh and seeing where they want the program to go in the next round.
Monica Trauzzi: You recently released some research indicating that RGGI could generate 16,000 jobs and $1.6 billion in revenues. Does the decision on offsets sort of change those projections in any way?
Sue Tierney: I don't think so. Our analysis followed the money in RGGI and the money starts as a, you know, pot of money that's created by auctioning the allowances to the marketplace. And several years ago at the start of RGGI in 2009, those allowance were going for a price where people thought actually that there would be a bite associated with the cap on CO2 emissions. It ended up that the cap was not binding at the end and so the price of allowance went down over time and one would expect to see with a tightening up of the allowance market that those prices might again be higher than they were last month. And, as a result of that, that we might see these kinds of economic benefits actually coming again from a next round of RGGI.
Monica Trauzzi: So if companies can't rely on offsets, does that mean it's going to be more difficult for them to comply with the program?
Sue Tierney: No. In my opinion, it's not a worry. This is a program that is responding very well to the competitive market for allowances. That allowances are very cheap at the moment. And, as result of that, I think having the option of using offsets is more theoretical than practical at the moment, just because the allowances are going at pretty low prices.
Monica Trauzzi: So, I want to talk about the analysis that you did specifically. You did mention the 16,000 jobs that could be created. RGGI would mean less fossil fuel use, so fewer fossil fuel jobs. So, with those numbers, you know, in relation to the RGGI numbers, what's the net job creation?
Sue Tierney: Great question. We studied what was going on in a 10-state area, the 10 states where RGGI is involved, and that's from basically Maryland and Delaware north to Maine. There's not a lot of fossil fuels in that area and when RGGI allowances were used in the electricity markets and then the dollars that came from selling off the allowances in auctions were sent to the states, the states invested in energy efficiency above all. And so what that did is plow money back in the region, lowered the demand for electricity, lowered the price of electricity from the power supply and then caused power generators to buy less fossil fuel from out of the region. So, it would probably be a different review if you were looking at a RGGI -- if it were taking place in some other 10-state area of the United States. But in this region, it was clearly an activity that kept the dollars in the 10 states.
Monica Trauzzi: So what do you see as the near-term outlook for RGGI? As we switch to more natural gas does the need for such a system still remain?
Sue Tierney: Well, I think that -- at least the grapevine is telling us that the states -- the majority of states who are participants in RGGI are still concerned about climate change. Many of them have global warming solutions laws that require them to reduce their emissions of greenhouse gases by, in some cases, 80 percent. So, as a result of that, the states are looking for ways to continue to do that. RGGI helps a small degree in moving in that direction. Gas will help undoubtedly, but also I think the states very hooked on the use of the $900 million that they collected in the past few years from selling CO2 allowances. And I think it would be hard for them to actually give that up.
Monica Trauzzi: So when you hear critics say that other market factors have also -- have caused a decrease in the use of fossil fuels and that's really what's causing this reduction in emissions, is there truth to that?
Sue Tierney: There is truth to the statement that demand went down as a result of the economic conditions, absolutely, but we took that into account. So we essentially looked at a world with RGGI and with a slow economy and a world without RGGI and a slow economy and low natural gas prices. So we normalized for that. So this is the effect of RGGI.
Monica Trauzzi: OK, we'll end it there. Thank you for coming on the show.
Sue Tierney: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
[End of Audio]