December 5, 2011 | last updated April 19, 2012 1:51 pm

Emissions Program Wins Praise In Report | But long-term benefits of €˜cap and trade' questioned

There's no doubt that "cap and trade" is a politically charged phrase. But do such environmental programs work?

A new study from the Boston office of The Analysis Group argues it not only can, but has, and especially for Massachusetts.

The Regional Greenhouse Gas Initiative (RGGI) started in 2009 as a market-based emission-reductions program sponsored by 10 states along the East Coast. Now, initial reports on its effectiveness are starting to flow in.

Businesses across Central Massachusetts have benefited from the program: Proceeds raised from charging power-generation facilities have been funneled through the state to create more work for dozens of energy efficiency contractors in the region. Some businesses like Conservation Services Group in Westborough, which manages energy efficiency programs for utility companies, have also seen a benefit.

The report — authored by two former officials with the Massachusetts Department of Public Utilities, which oversees the power-generation and distribution markets in the Bay State — paints a largely glowing view of the program. According to the report, RGGI is expected to create 16,000 jobs over 10 years, save customers nearly $1.1 billion in electricity bills and provide an overall net impact of $1.6 billion in added economic value to the RGGI region, which stretches from Maine to Maryland.

And, the authors found Massachusetts is one of the biggest beneficiaries of the program because of the way money collected by the Bay State has been reinvested in energy efficiency programs.

But not everyone believes those big numbers. Paul Bachman, director of research for the free market-leaning Beacon Hill Institute at Suffolk University in Boston, questions some of the findings and is tempering expectations about how effective the program will be in the long run.

Nitty Gritty

RGGI works by mandating that all power plants that produce more than 25 megawatts of power be subject to a cap on the amount of carbon emissions they can produce. The cap was initially set at 188 million short tons of carbon dioxide emissions in the 10 states, and the cap is set to decrease starting in 2015, forcing power companies to either reduce their emissions or buy more allowances.

If a fossil fuel-burning plant is above the cap, the plant owner can buy allowances to comply with it. The allowances are purchased in an auction-style bidding environment. In the first year of the program, an RGGI auction raised close to $500 million that was distributed to the 10 states.

Massachusetts officials have chosen to invest almost all of the state's $143 million in RGGI proceeds in energy efficiency measures.

Susan Tierney, one of the study's authors, who has been in the energy business for 30 years, said that's been a good strategy that has given the state a good "bang for its buck" with RGGI proceeds.

Other states, meanwhile, used most of their money to offset customer electricity bills.

In Massachusetts, Tierney said insulation has been installed, lighting fixtures have been upgraded, and energy auditors have been hired to help reduce the amount of energy being used. That, she said, will ultimately lead to less energy consumption, which means power plants don't have to generate as much energy, and everyone's energy bills will be reduced.

"By lowering the demand for electricity, it benefits all consumers," she said.

But the amount of money RGGI is generating is dropping.

After raising more than $500 million in 2009, auctions yielded less than $300 million in 2010 and so far have netted around $100 million so far this year.

So, as consumers use less energy — because of efficiency measures and likely because of a slowdown in economic activity — there are fewer carbon emissions produced, and power plant owners will buy fewer allowances, which mean less money for the states.

Bachman, with the Beacon Hill Institute, sees that as a problem for RGGI proponents.

Diminishing Returns

Energy efficiency upgrades — such as insulation and more energy-efficient lighting — are really effective in the beginning, but their return on investment dwindles as time goes on, he argued. But after a few years, when home and business owners have picked the "low-hanging fruit," future energy efficiency projects are costlier and generally don't produce similarly robust results.

"It ends up taking more and more money to generate an equal amount of savings," Bachman said. That, he said, is a fundamental weakness in the RGGI program.

As proceeds from RGGI continue to diminish, so too will the efficiency upgrades that can be put in place to reduce energy load. The effect, Bachman said, is that power plant owners will be left to pay for allowances — a cost that could eventually be passed on to consumers — while energy efficiency upgrades will become increasingly less efficient and effective.

That's not Bachman's only concern with the program: He's also skeptical of the prediction of 16,000 new jobs. RGGI is not creating new wealth, Bachman argued; it's simply redistributing money within the energy sector. He questioned whether that's an actual overall net economic benefit or just a redistribution of money and jobs.

Local Benefits

How has the RGGI program benefited the Central Massachusetts economy?

Primarily, RGGI proceeds have been used to support and expand energy efficiency programs that were already in place, said Patricia Stanton, senior vice president of policy and advocacy for Westborough-based Conservation Services Group, a strong advocate of RGGI. Stanton said funding from the cap-and-trade program has only increased the effectiveness of the longer-standing energy efficiency programs.

"The primary beneficiaries of the program have clearly been property owners and contractors," she said.

Property owners have benefited from decreased utility bills because of the energy efficiency upgrades that have been implemented using RGGI money. Meanwhile, the money has enabled more contractors to do such work. Stanton said she's not too worried about the possibility of dwindling RGGI money. Its proceeds make up only a small portion of the funding used to pay for energy efficiency upgrades, so while a drop would not be beneficial, she doesn't believe it would jeopardize the program.


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