RGGI Cost Benefit Analysis Subgroup

Dwayne Breger

MA Division of Energy Resources

Economic Modeling Overview

Scope/Objectives

Analysis of the state and regional economic impacts of the CO2 cap-and-trade program and policy options.

Evaluate co-benefits of air pollution emission changes that result from CO2 program.

Evaluate impact of CO2 program on energy efficiency and renewable energy sectors.

Cost-Benefit Analysis Subgroup

• SWG has selected REMI Policy Insight as modeling tool

• NESCAUM will serve as Modeling Agent for RGGI

• MA DOER will provide modeling services to NESCAUM

• REMI will prepare a 12-state/region 53-sector model with input/output for each state and full region

• REMI Modeling Plan integrated with IPM Modeling

– I/O data linkage

– Policy Simulations follow IPM scenarios

Economic Model Selection

Basic Economic Blocksin REMI Structure

Population & Labor Supply

Output

Labor & Capital Demand

Wages, Prices, & Profits

Market Shares

• Personal Income

• Gross State Product

• Employment, by sectors

• Imports/Exports – between RGGI states, and between RGGI region and outside

• Demographic changes

• Industry sector consumption/production

• Health Expenditures

Sample Output from REMI

Integration ofEnergy and Economic Modeling

Energy Model

IPM* Model

Economic ModelREMI Policy Insight

Existing Power PlantsTransmission ConstraintsDemand ProjectionsFuel Price ProjectionsNew Plant Costs

Electricity PricesFuel UseAir EmissionsNew Plant Location & Investment

Gross State ProductsPersonal IncomeEmploymentIndustry Sector Prod/ConsHealth Costs

Air Quality Analysis

* Integrated Planning Model, ICF Consulting, Inc.

REMI Input Interface w/ IPM

Key Energy Sector OutputsElectric Energy Prices

wholesale (IPM) to retail (REMI)

New Capacity Construction / Investment

Fuel Consumption

REMI ModelingKey Scenarios

Scenarios follow IPM Model Scenarios

• Benchmark and Reference Scenarios

• CO2 Cap Level

• Policy, Structure, Flexibility Scenarios

• Model Rule Scenarios

Benchmark/Reference Scenarios

• Establish REMI Benchmark Scenario (economic projections w/o policies)– Compare/Calibrate REMI Results w/ IPM

Energy/capacity growth ↔ economic growth

Wholesale energy prices ↔ retail energy prices

• Establish Reference Policy Scenarios– Use output from IPM Reference Policy Scenarios

Policy Scenarios

• Economic projections with outputs from IPM Scenarios (compare economic impacts relative to reference scenario)– Cap Size– Flexibility Mechanisms– Model Rule– Allocation Strategies

Schedule for REMI Scenarios

Task/Scenario Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr

Develop IPM / REMI Interface

Benchmark and Reference ScenariosIPM ResultsREMI Modeling

CO2 Cap Level ScenariosIPM ResultsREMI Modeling

Policy Structure, and Flexibility ScenariosIPM ResultsREMI Modeling

Model Rule ScenariosIPM ResultsREMI Modeling

2004 2005