NYISO: RGGI Has Not Caused GHG Increases in Nonparticipating States from Increased Imports

A study conducted by the New York Independent System Operator Inc. (NYISO) to evaluate whether the cost of compliance with the Regional Greenhouse Gas Initiative (RGGI)—a regional cap-and-trade program—has caused an increase in greenhouse gas (GHG) emissions in neighboring non-RGGI areas such as Pennsylvania concluded RGGI has not caused an increase in emissions or significantly affected the pattern of power supply.

The postulated increase in emissions is sometimes referred to as “leakage” and could, it was thought, be caused by a shift in the relative economics of generating power in RGGI and non-RGGI states.

However, “The econometric analysis does not support the hypothesis that RGGI compliance has caused leakage, likely because [the] magnitude of RGGI allowance prices has been low relative to the price of electricity,” said NYISO Senior Manager of Strategic & Business Planning James T. Gallagher in a presentation last week. He added: “Large changes in economic growth, fuel prices and other variables made the relatively small potential effect of RGGI on [Pennsylvania] emissions and [Pennsylvania] to [New York] imports even more difficult to detect.”

In order to test for such an increase, NYISO and researchers at Rensselaer Polytechnic Institute (RPI) developed econometric models to explain both power transfers between New York and Pennsylvania and carbon dioxide (CO2) emissions from power plants in Pennsylvania. These models estimate the effect on these two variables from variations in RGGI allowance prices, electrical load, fuel prices, nitrogen oxide and sulfur dioxide allowance prices, temperature, production from non-emitting generation, and New England-to-New York power transfers. If, in these models, a higher RGGI allowance price were empirically associated with higher Pennsylvania-New York power flows or Pennsylvania emissions, that would indicate RGGI emissions leakage, the report said.

The study evaluated a period from 2008 to September 2010, and NYISO said it was expected that variables such as electrical loads, fuel costs, and non-emitting generation would all show statistically significant impacts on emissions, Pennsylvania-to-New York power transfers, or both. “However, the models were not able to show a statistically significant impact from RGGI costs on either of these variables,” the report said.

The report concluded that RGGI prices appeared too low from the start of the program in 2009 to have a significant effect on emissions leakage.

RGGI includes 10 member states that have committed to a carbon dioxide budget and trading program to reduce CO2 emissions from coal-, oil-, and gas-fired power plants with a rated capacity of more than 25 MW. Member states are: New York, New Jersey, Massachusetts, Maine, New Hampshire, Vermont, Connecticut, Rhode Island, Delaware, and Maryland.

"Emissions leakage can occur when emissions raise the marginal production cost of a tradable good in one region but not in another, such as when one region has a cap-and-trade program on emissions from industry but another region does not," the report says. In the power sector, factors such as transmission thermal ratings and system stability requirements can limit emissions leakage.

The report cites two previous studies that modeled system-wide emissions leakage from the RGGI program and a third, which considered the effect of a proposed transmission line on leakage. The difference between the earlier studies and the NYISO study is that "earlier studies were prospective and employed simulations, while ours is retrospective and employs statistical methods to attempt to identify actual RGGI impacts."

A study conducted by ICF International for RGGI that predicted emissions leakage from RGGI through 2024 concluded that CO2 emissions increases in non-participating states could jump by 27% of RGGI reductions.

Another 2010 study by Shawhan, Mitarotonda, Zimmerman, and Taber predicted that, with the current transmission system and generators, and non-price-responsive demand, a RGGI allowance price of $3.87 would lead to an immediate emission reduction in RGGI states of 1.6 million metric tonnes per year. However, their model also estimated that the reductions would be accompanied by an immediate emission increase in surrounding states and provinces of 1.3 million metric tonnes–an 82% leakage.

Sources: POWERnews, NYISO