RGGI Auction #9: The Floor Price is Right

The Regional Greenhouse Gas Initiative (RGGI) auction program celebrated its second birthday this week by holding the 9th regional auction of CO2 allowances.  As today’s report highlights, the auction brought a bittersweet first for the 10-state program: unsold allowances from both the current and future regulatory periods.  Bidders bought only 75% of the 45.6 million 2010-vintage allowances offered and just 61% of the 2013-vintage allowances, with both auctions closing at the mandatory floor price of $1.86.   Not surprisingly, given these results, participation in the auction was down — the 2010 auction garnered bids from 45 entities, 92% of whom were regulated generators or their affiliates, down from March’s relatively robust participation of 51 bidders.   According to today’s report, regulated entities have purchased 84% of all allowances sold in Auctions 1-9, and through trading on the secondary market, will hold 95% of the allowances in circulation, once the allowances sold in Auction 9 are distributed.

Under the RGGI rules, the leftover allowances from this week’s auctions may be sold at a future date, or a state may choose to retire them.  Since many people believe RGGI allowances to be over-subscribed, retiring some or all of these leftover allowances might be one way for the RGGI states to re-balance the market and encourage further reductions in emissions. 

Even at the floor price, the RGGI proceeds keep growing.  In the last 2 years, the auctions have brought in $729, 281,959 for the 10 states, who are collectively investing 80% of the funds in state-based energy programs: 60% in energy efficiency programs, 10% to accelerate deployment of renewable energy technologies, and 10% to direct consumer benefit programs, such as assistance to low-income ratepayers.  RGGI, Inc. noted in its press release accompanying the market monitor report the hopes that this "auction and invest" design will be a model for a national program as well as other regional programs like the Western Climate Initiative and the Midwest Greenhouse Gas Reduction Accord. Since regional programs are likely to be the model for the foreseeable future, this certainly seems like a possibility.

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