Accounting for CO2: The Enactment and Effects of the Regional Greenhouse Gas Initiative.

Abstract

Atmospheric concentrations of CO2 continue to rise, and the electrical industry is one of the largest sources of emissions. In the United States it has been difficult to enact CO2 policies for the electrical sector. A key exception is the Regional Greenhouse Gas Initiative (RGGI), which became the first mandatory CO2 policy when it was enacted in 2008. RGGI is a market-based cap and trade policy that allocates allowances through an auction, whose revenues are recycled to support energy efficiency. This research uses a combination of economic and institutional perspectives to describe and analyze how RGGI was enacted and the effects it is having on the electrical industry. Policymakers were able to enact RGGI because they used design features that minimized the policy’s effect on the price of producing and purchasing electricity. This design has resulted in a consistently low CO2 allowance price, which has led many individuals and organizations in the region to claim the formal policy is ineffective. At the same time, these design features are also inducing a number of informal or cultural effects. In particular, RGGI’s low allowance price makes it inexpensive for electrical companies and consumers to begin treating CO2 and the operation of CO2-emitting technologies as a controlled material and activity, which has allowed policymakers to strengthen future phases of the policy. RGGI has also recycled approximately $500 million dollars to energy efficiency initiatives. These funds are directly incentivizing the use of these technologies and practices, but they are also indirectly accelerating their diffusion by accentuating positive economic meanings and attenuating negative economic meanings. In doing so, these funds are helping electrical companies, consumers, and regulators see and value the economic and non-economic benefits energy efficiency provides, which is facilitating the diffusion of existing approaches and stimulating the emergence of new approaches. When RGGI’s revenue recycler and cultural effects are accounted for it becomes clear the policy is having a significant effect that extends beyond its formal allowances and price signals.