Connecticut's commitment to the regional cap-and-trade system and subsequent investment in energy efficiency bolsters the economy, even as power plants shell out cash for their air pollution.
In the first three years of the 10-state Regional Greenhouse Gas Initiative, Connecticut's state government received $51.7 million of the $913.3 million awarded throughout the region. Connecticut invested 73 percent in energy efficiency initiatives; 23 percent in renewable energy projects; 5 percent on offsetting air pollution; and 1 percent on clean energy education for teachers and students.
Because of energy efficiency, the impact on Connecticut's economy outpaced the average of the 10 states in the regional initiative, according to an economic impact study of the Northeast's cap-and-trade system, performed by the Boston-based Analysis Group.
"RGGI is one of those triple benefit programs that create environmental gain, investment in clean energy research, and overall economic benefits and job creation," said Jonathan Schrag, deputy commissioner for the Connecticut Department of Energy & Environmental Protection.
Under RGGI, power plants emitting greenhouse gases buy offsets in an auction based on how much they pollute the atmosphere. The money is redistributed to participating states. RGGI's nine other states are Massachusetts, New York, Rhode Island, New Hampshire, New Jersey, Maine, Vermont, Delaware and Maryland.
"Obviously, energy efficiency has the biggest bang of their buck," said Paul Hibbard, the report's co-author.
Efficiency reaped large dividends for Connecticut — and others such as Massachusetts — because those measures sliced overall consumption in the state, saving ratepayers money on their utility bills to spend elsewhere.
Energy efficiency also lowers electricity rates, as fewer high-cost power generators are needed to meet demand.
"The state of Connecticut, along with a few other states in the region, really led the way with prioritizing energy efficiency," said Schrag, former RGGI executive director. "This study really demonstrates the wisdom of Connecticut's policymakers."
In the Analysis Group study of RGGI's first three years, starting in 2009, the authors examined how the states spent the auction money, and that money's impact on the states' economies vs. the cost to the power generators to participate in the auction.
According to the study, all 10 RGGI states had an individual net benefit to their economies, with the total net benefit at $1.6 billion.
"The states spend the money in a lot of different ways, and we wanted to find out what happened to it once it circulated around the economy," said Susan Tierney, the report's co-author.
In Connecticut, the net benefit was $189 million over the three years.
This came in spite of the state's power plants losing nearly $175 million in revenue because of RGGI payments.
The state's power generators don't seem to mind paying into the RGGI auctions, calling it as a cost of doing business in the region. NRG Energy, which operates nine Connecticut power plants, is well prepared for the costs of monitoring its emissions and purchasing in the auction, spokesman David Gaier said.
And the RGGI auctions don't eat into power generators' bottom lines. The generators pass along the expense in electricity rates.
"Wholesale providers generally include the costs of all environmental programs in their prices," Gaier said.
Connecticut's expenditure of its RGGI proceeds more than counteracts this cost to generatos and ratepayers, the report says.
Efficiency programs not only reduce consumption and prices, which leads to fewer imported fossil fuels; but they also lead to the purchase of physical goods, such as insulation, weather-stripping and light bulbs.
Renewable energy projects as well require purchases of goods such as solar panels and services such as installation and maintenance.
Connecticut also stood out from other RGGI states for education, Tierney said. Connecticut used a higher portion of its money — $337,290 in all — on educational initiatives.
Not counting the benefit of educating the future workforce on energy, spending in education creates 20 percent positive economic benefit. People get training to provide the education.
"Each initiative has a different multiplier effect on the economy," Tierney said.
Unlike RGGI states such as New York and New Jersey, Connecticut avoided using its money to plug holes in its state operating budget. Of all the ways states spent, this added the least value to the state economy.
Connecticut missed out on the biggest direct impact to the economy. The study gave that distinction to giving the RGGI money directly to consumers through rebate on their electricity bills, something Maryland did.
But Connecticut's commitment to energy efficiency was its saving grace, through its direct and indirect benefits.
Efficiency measures aren't just a function of RGGI. Gov. Dannel Malloy wants Connecticut ranked No. 1 in the nation for efficiency; the state currently ranks No. 9. To accomplish this goal, Malloy wants expanded short-term solutions such as weatherizing homes, businesses and state buildings, and long-term solutions such as appliance efficiency standards and building codes.
"This study is evidence for Governor Malloy's continued emphasis on energy efficiency," Schrag said.
RGGI is a controversial program, as cap-and-trade was rejected nationally. Only California has a similar program, and New Jersey is pulling out of RGGI.
"Connecticut is long-term committed to clean energy, and Connecticut has strong commitment to market-based programs," Schrag said. "RGGI has been enormously successful, and Connecticut remains committed to it."