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Economic and Energy Impacts from Marylands
Potential Participation in the Regional
Greenhouse Gas Initiative A Study Performed by
the Center for Integrative Environmental
Research at the University of Maryland Commissio
ned by the Maryland Department of the
Environment January 29, 2007
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Study Purpose

• Maryland enacted the Healthy Air Act in April
  2006, requiring the Governor to include the State
  in the Regional Greenhouse Gas Initiative.
• MDE is required to study reliability and cost
  issues that may result from joining RGGI.
• MDE contracted with the University of Maryland
  through the Center for Integrative Environmental
  Research (CIER) to research reliability and cost
  impacts.
• The study analyzes potential impacts on
  electricity demand, energy supply, generating
  plant retirement and generator profits,
  electricity prices, CO2 allowance prices, CO2
  emissions, emissions leakage, generator
  competitiveness, generation adequacy, ratepayer
  impacts and overall economic impacts.

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Research Team

• University of Maryland
• Center for Integrative Environmental Research
• Matthias Ruth, Principal Investigator
• Steven Gabriel, Co-Principal Investigator
• Kimberly Ross, Project Manager
• Sanjana Ahmad
• Russell Conklin
• Jennifer Cotting
• Julia Miller
• Dan Nees
• The John Hopkins University
• Benjamin Hobbs
• Yihsu Chen (currently at University of
  California, Merced)
• Soo Ra Kim

• Resources for the Future
• Dallas Burtaw
• Karen Palmer
• Anthony Paul
• Danny Kahn
• David Evans
• Towson University
• Regional Economics Study Institute
• Daraius Irani
• Jeffrey Michael
• Dana Hawkins

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Study Design and Research Methodology

• Three complementary models were employed
• Haiku
• National simulation of the electric power grid
  environmental policies (e.g., emissions control
  technologies)
• This model helps answer questions such as how
  will Marylands electrical power prices will
  change and how the fuel mix for power generation
  will change due to the state joining RGGI.
• IMPLAN
• Input-output model used to estimate the statewide
  economic and fiscal impacts of Maryland joining
  RGGI (this model is used frequently by the state)
• This model helps answer questions such as how
  will Maryland joining RGGI affect the average
  annual electricity bill, the state economy, etc.

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Study Design and Research Methodology

• Three complementary models were employed
• Johns Hopkins University-Oligopoly Under
  Transmission and Emissions Constraints
  (JHU-OUTEC)
• Market equilibrium model for the PJM region,
  which includes Maryland and its neighbors it
  allows analysis of the potential market power of
  large electric generating companies, and more
  detailed transmission capacity analyses
• This model helps answer questions like whether
  market power of generation companies is affected
  by Marylands participation in RGGI.

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Study Design and Research Methodology

• Two primary modeling scenarios were employed by
  all three models
• Maryland does not participate in RGGI
• the baseline scenario (i.e., business-as-usual)
• the Classic RGGI region consists of the current
  RGGI states (ME, VT, CT, NH, NJ, NY, and DE) and
  anticipated RGGI states (MA and RI) Note MA
  joined after study completion
• Maryland joins RGGI
• includes same assumptions as baseline scenario
• expands the Classic RGGI region to include
  Maryland
• total amount of RGGI CO2 emissions allowances
  increased by roughly 1/3
• JHU-OUTEC and IMPLAN use Haiku results as inputs.

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Study Design and Research Methodology

• Comments were solicited from over 60 stakeholders
  representing more than 30 institutions
• The stakeholders ranged from industry to state
  government agencies to environmental NGOs
• Much of the input came in the early stages
• modeling assumptions
• data parameters
• recommendations for future alternative model
  runs
• Stakeholders will be invited to review the report
  and comments on its analysis
• report will be available online at
  www.cier.umd.edu
• comments are due three weeks after report
  release
• addendum with comments will be provided online

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Findings Supply, Demand and Reliability

• Maryland Joining RGGI
• Price of Electricity
• Has virtually no effect on electricity price in
  Maryland.
• Reduces electricity demand in Maryland through
  investments in energy efficiency, which
  contributes to the lack of a price effect.
• Reliability/Generator Adequacy
• Is unlikely to raise generation capacity prices
  significantly in the Central Maryland subarea of
  the PJM region, because energy efficiency
  programs would reduce demand for capacity
  reserves.

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Findings Supply, Demand and Reliability

• Maryland Joining RGGI
• Utility Impacts
• Has a negative impact on profits of coal-fired
  generators, but does not prompt retirement of
  coal capacity in Maryland.
• Produces a very small amount of retirement of
  existing oil and gas steam capacity.
• Has a positive impact on the profits of oil and
  gas generators, who earn revenues from the sale
  of CO2 emission allowances created by the program.

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Electricity Demand in Maryland
Maryland joining RGGI lowers net electricity
demand in the state by 1.5 to 3.0 as a result
of increased energy efficiency investment.
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The Effect of Maryland Joining RGGI on CO2
Emissions from Electricity Generation in Maryland
in Maryland
Maryland joining RGGI reduces CO2 emissions from
electricity generators in the state by roughly
13 by 2020.
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Effects of Maryland Joining RGGI on Cumulative
CO2 Emissions for Expanded RGGI Region
Maryland joining RGGI results in total expected
emission reductions (including offsets) for the
expanded RGGI region of roughly 26 million tons
between 2010 and 2025.
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Findings Emissions Leakage

• Maryland Joining RGGI
• Leakage refers to the change in CO2 emissions
  outside of the expanded RGGI region.
• We find leakage can be positive or negative
  depending on where it is measured.
• In general leakage is small.

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RGGI CO2 Allowance Prices
Maryland joining RGGI reduces the price of CO2
emissions allowances in the RGGI cap and trade
program.
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Findings Economic Impacts

• Maryland Joining RGGI
• Costs to Consumers
• The 50 million in annual savings to residential
  customers in 2010 translates into annual savings
  of 22 for the average Maryland household.
• Total savings to commercial and industrial
  customers are even greater than residential
  savings.
• Job Creation
• Over 1,800 net new jobs are created in 2010 by
  Maryland joining RGGI which is 0.06 of total
  forecasted employment in Maryland in 2010.
• In subsequent years, this rises to 0.1 of total
  forecasted employment in Maryland.

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Findings Economic Impacts

• Maryland Joining RGGI
• State Economy
• Gross State Product (GSP) is expected to
  increased by nearly 150 million in 2010 due to
  Maryland joining RGGI.
• The total economic impact is 0.06 of Marylands
  forecasted GSP for 2010, and remains less than
  0.1 of total forecasted GSP in subsequent years.
• There is little fiscal impact on the state, aside
  from the revenue generated from auctioning
  allowances, which the model assumes is 100
  dedicated to a new energy efficiency program.

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Findings Generator Competitiveness and Adequacy

• Maryland Joins RGGI
• Generator Competitiveness
• There is no evidence that the effects of Maryland
  joining RGGI will amplify any potential market
  power in the generation market.
• Transmission
• Assumptions concerning the configuration of the
  transmission grid after 2015 can make as much
  difference in power prices and other market
  outcomes as "Maryland joins RGGI."

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Recommended for Additional Review

• Integrative Environmental Research could answer
  additional questions, such as
• Given the significance of energy efficiency found
  in this study, how might further changes in
  energy efficiency impact the economy, energy use
  and the environment?
• What would be the effect of an allowance auction
  of more than 25 going to energy efficiency and
  public benefit?
• What would be the impact of technology, such as
  the new nuclear plants envisioned in 2005 Energy
  Policy Act, advanced combustion turbines, and gas
  combined cycle plants?
• How would the inclusion of expanded energy
  efficiency data affect the results?
• What are the most effective policy implementation
  and management strategies for Maryland in joining
  RGGI, considering the effect on specific
  industries (employing interviews, case studies,
  studies of public engagement, etc.)?
• How do the recently released studies from other
  states in RGGI compare?
• How sensitive are the results to higher natural
  gas prices?

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In Total

• Maryland joining RGGI will have
• a positive environmental impact
• a negative impact on profits for coal-fired power
  plants, partially offset by increased profits for
  oil and natural gas plants
• negligible effect on carbon dioxide displacement
  (leakage) to non-RGGI states
• a zero to slightly positive impact on electricity
  rates (lowering the consumer bill)
• a slightly positive economic impact for the state

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Download the Report

• Download the full report at
• www.cier.umd.edu