Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

The nine states still participating in the Regional Greenhouse Gas Initiative are getting ready for the first auction of RGGI's second compliance period, scheduled for March 14th.  In the auction notice released last week, they announced 4 changes to the program, and analysts are predicting there are far more significant changes to come -- namely adjustments to the total emissions cap. 

The first change: which we knew was coming; New Jersey is officially out.  The second:  the reserve price, the lowest price at which allowances may sell, has been increased by 4 cents to $1.93, in line with the Consumer Price Index.  The third:  although RGGI usually offers allowances from two different compliance periods for sale at each auction, March's auction will offer only 2012 allowances, raising some questions about RGGI's own view of its future past this compliance period's end in 2014.  The fourth change:  the participating states announced that they will retire 87 million of the allowances that went unsold during the 2009-2011 auctions, a move that may indicate the states' willingness to set the cap for 2012 below the earlier levels, to avoid such over-allocation of allowances in future years.

The original plan for the RGGI program, when it was introduced in 2008, was to set the emissions cap on large power plants in the Northeast at 188 million tons (estimated 2005 levels) through 2014, then lower the cap by 2.5% per year over the next four years, for a net change of 10%.  But in the intervening years, emissions in the Northeast have declined significantly due to decreasing generation from higher-carbon dioxide sources such as fuel oil and coal, increasing generation from natural gas and renewable, carbon-free sources, and expanded energy efficiency programs -- many of which were paid for by funds collected by the states through the RGGI auctions.  As a result, emissions are now far below the planned reductions already -- 2011 emissions were 34% below the cap, according to Environment Northeast's analysis released last week.  As these changes in emissions are expected to be permanent, the RGGI cap would have to be lowered by a significant amount before the cap-and-trade program became the driving factor in carbon reductions.  

The participating states are currently working on a planned comprehensive review of the RGGI program, with the most recent topics of discussion including evaluating the use of offsets and other cost-containment mechanisms in the future.  While the participating states' willingness to retire the unsold allowances from the first compliance period may be a signal of their intentions to re-set the cap for the 2012-2014 compliance period as well, it remains to be seen whether the states will merely adjust the cap to reflect observed emission trends or try to create even further cuts in emissions. 

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With the first compliance period in the Regional Greenhouse Gas Initiative (RGGI) coming to a close in December, it seems an appropriate time to look back at what we can learn from the country’s first market-based program aimed at reducing emissions of carbon dioxide from power plants. A report released Tuesday by the Analysis Group analyzed the economic impacts of RGGI – how the program impacted electricity prices, power producers’ costs, and consumers’ electric bills, and what effect the millions in quarterly auction proceeds has had, and will have, on the region’s economy.

The report does not try to predict what will happen or should happen to RGGI to update it for 2012 and beyond. Instead, it takes the last three years as a snapshot, and models the impacts that the allowances sold and money spent by the states through the last 3 years will have over the next 10 years.

Overall, the 10 states took in $912 million from the auctions, which, when invested by the states in various programs and initiatives, added $1.6 billion in net present value to the region's economy, even when taking into account the nearly $1.6 billion loss in income that power producers face with more efficient energy usage reducing prices and consumption. The report also found that the first three years of RGGI have created over 16,000 new “job years” – from employing people to conduct energy efficiency audits or install efficiency measures,  to maintaining workers in state-funded programs that might have been cut had a state not used RGGI funds to close budget gaps.

The study found that, although the cost of the allowances was largely passed along to consumers, RGGI only increased consumers’ bills by an average of 0.7% over the last 3 years. The study predicts that, over time, RGGI will lower consumers’ bills, because the states invested a substantial amount of the allowance proceeds on energy efficiency programs.  By 2021, consumers of electricity in the 10-state region will enjoy a net savings of nearly $1.1 billion on their electricity bills, and, due to efficiency programs focused on insulation and heating efficiency, another $174 million in savings from avoided expense on natural gas and heating oil. 

The analysis I found the most interesting concerns how state decisions to spend RGGI proceeds affected local economies. The Memorandum of Understanding that set up RGGI required that the states invest at least 25% of the proceeds for “public benefit,” but left the rest up to each state. As a result, there was a divergent approach to spending that, according to today's report, resulted in significant differences in returns.

New England states spent 86% of their RGGI funds on energy efficiency, and only 3% on direct  assistance to low-income consumers. Because the investment in energy efficiency introduced funds into the economy twice – both when the state paid into the efficiency program, and when consumers paid less for electricity, leaving them free to spend elsewhere in the economy – the overall macroeconomic impact of RGGI in New England was almost $900 million, even though those states only took in $275 million in allowance funds.

In comparison, the states in the PJM regional transmission organization (New Jersey, Delaware and Maryland), spent 41% of their funds on direct bill assistance and only 13% on energy efficiency.  The direct bill assistance also freed consumers to spend money elsewhere in the economy, but the analysis found that, without the multiplier effect of energy efficiency, the returns for these states were not as great.   As a result, although these three states received more money from allowance sales than New England -- $310 million – the net positive impact of RGGI was only $341 million.

It’s not much of a surprise that the investment of auction proceeds in energy efficiency is one of the big success stories of the first three years of RGGI. Nonetheless, it will be interesting to see whether the report’s conclusions regarding the relative impact of spending on energy efficiency as compared to low-income assistance will influence how states spend their auction proceeds going forward. 

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The Regional Greenhouse Gas Initiative (RGGI) celebrated its third anniversary by holding its 13th quarterly auction of carbon dioxide allowances on Wednesday.   As today's Market Monitor report highlights, although the number of bidders was up, the percentage of allowances purchased was down.  Thirty-one bidders purchased just under 18% of the 42,189,685 current compliance period allowances offered for sale by the 10-state group (including New Jersey).  These allowances, with vintage dates from 2010 and 2011, can be used by electric generators in the current compliance period, which will end in December.  The previous low for demand for these allowances dates from the last auction in June, where 25 bidders bought only 30% of the available allowances, also at the floor price of $1.89.  

The states other than New Jersey then held an auction offering 1.8 million allowances from vintage year 2014, which can be used to comply in the next compliance period, from 2012-2014.  In perhaps the most direct sign of uncertainty for the future of RGGI, no one bid on these allowances. 

Per the Market Monitor report, there were not any market barriers to bidding in the auction of future compliance period allowances.  Bidders were just not interested.  The future of RGGI could seem  uncertain to would-be-bidders, between member states' reconsidering their involvement -- for instance, New Hampshire's Senate recently failed to overturn a veto by the Governor of a bill that would have removed the state from the program -- and RGGI, Inc.'s ongoing comprehensive review of the program for the new compliance period. 

In addition, the compliance entities, who are estimated to own 97% of the allowances in circulation, might feel that they have enough allowances already.  In the press release accompanying the monitor report, Maine's Public Utilities Commissioner chalked the low sales of the auction up to reduced emissions across the RGGI region, arguing that the states' investment in energy efficiency have worked.  With lower emissions, fewer allowances are needed.  Since RGGI allows banking, but not borrowing, extra allowances from the 2009-2011 compliance period can be used in the 2012-2014 period, but not the other way around.  As a consequence, the over-allocation of allowances to this early period could make sales of RGGI allowances in the second compliance period sluggish, even without the added political uncertainty.

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Demand for allowances in the nation's only cap-and-trade program for carbon dioxide emissions fell sharply last week.  At the 12th Quarterly Auction of the Regional Greenhouse Gas Initiative (RGGI), held on June 8th,  70% of the current compliance period allowances went unsold.  As the RGGI Market Monitor Report highlights, with only 25 bidders participating in the auction of the 2009-2011 compliance period allowances, only 30% of the 42 million allowances offered for sale by the 10-state group (including New Jersey) were actually purchased at the floor price of $1.89.  Demand for future allowances, good for the 2012-2014 compliance period, fared only slightly better, with the 5 participants in that auction buying just over 50% of the 1.86 million allowances offered by the still-participating states (minus New Jersey, which supplied allowances for the 2009-2011 auction, but not the 2012-2014 auction) also at the floor price of $1.89.  

This sharp drop in the sale of allowances at auction is surprising, particularly given that the last auction, held in March, sold out of allowances for the first time since Auction #8.  The number of participants who qualified to bid at the March and June auctions did not differ much -- 49 and 47, respectively -- but the number of participants who actually submitted bids fell sharply, from 36 to 25.  An even more significant difference is the number of allowances that each of these bidders bought.  For instance, while the top two bidders in March bought over 10 million allowances each, the top bidders in June bought just 2.6 million and 1.9 million respectively. 

As yesterday's ClimateWire highlighted, theories about the causes of this surprising drop abound.  My favorite is that companies regulated by RGGI already have most of the allowances they will need to cover their emissions in the compliance period ending in December, and these unsold allowances are primarily due to the excess supply under the RGGI cap.  Other theories cite to New Jersey's recent announcement that it would withdraw from the program by the end of the year as a sign to would-be-buyers that the program is threatened.  But New Jersey's break with RGGI will not be as quick as initially reported.  The official letter from New Jersey's Commissioner of the Department of Environmental Protection outlines that the state will continue to participate in the allowance auctions for calendar year 2011, as it did in the June auction last week, and that regulated power plants in New Jersey are not being relieved of their obligation to hold sufficient allowances to cover their emissions in the initial compliance period, which ends on December 31, 2011. 

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The Regional Greenhouse Gas Initiative (RGGI) took a bit of a blow today when Governor Christie of New Jersey, the second-largest of the 10-state group, announced that the state was leaving the organization.  This comes only a few weeks after the narrow defeat of bills to repeal RGGI in New Hampshire, Delaware and Maine.  However, RGGI announced on its website that the participating states would proceed with their 12th quarterly auction as scheduled on June 8th. 

Despite Governor Christie’s announcement, official withdrawal from RGGI requires legislative action, namely repeal of the provisions of New Jersey’s Global Warming Solutions Fund Statute that established the cap-and-trade program within the state.  Currently pending before the New Jersey legislature is a bill that would repeal these sections and transfer any remaining money from allowances into the state's general fund.

So what happens now?  Will the nine remaining states reduce their own RGGI allowance budgets in order to recognize the NJ allowances already sold?  Or will they proceed as if New Jersey was never part of the program in the first place, and invalidate the allowances? 

In the press release responding to the announcement, the organization said only that “the participating states will evaluate how New Jersey’s proposed withdrawal might affect New Jersey allowances currently in circulation.”   It will be interesting to see if the New Jersey-based power plants which have been buying allowances along the way at quarterly auctions, in preparation for the end of the 3-year compliance period this December, will demand a refund from the state for their potentially worthless allowances. In addition to the loss of significant RGGI-allowance revenue going forward, this could create a problem for this already cash-strapped state.   

In the last two years, New Jersey took in over $113 million from the sale of allowances in the nine auctions in which it participated. This money was divided up in a number of ways – including the Governor’s recent withdrawal of $65.2 million to balance the current state budget.  New Jersey has also already awarded $29.6 million in allowance proceeds to 12 large scale energy efficiency and renewable energy projects through its Clean Energy Solutions Capital Investment Loan/Grant Program. According to New Jersey's statements through the RGGI website, these programs would create enough renewable energy to meet the demands of more than 19,600 New Jersey households each year, and would avoid 1.7 million tons of CO₂ over the lifetime of the projects.  

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The 10th auction in the Regional Greenhouse Gas Initiative (RGGI) was held on December 1st.  In honor of this significant round number, I give you the top 10 interesting facts about the 10th RGGI Auction, all of which are based on today's market monitor report:

10)  In the Auction, 24,755,000 allowances from the 2009-2011 compliance period sold for $1.86 each (the floor price);

9)  That amount is only 57% of the 2009-2011 allowances offered for sale, the lowest yield from a current compliance period auction;

8)  38 entities bid on these current compliance period allowances, down from 45 in September and 51 in March;

7)  The generators subject to RGGI compliance and their affiliates (collectively "compliance entities") purchased 97% of the current compliance period allowances sold;

6)  1,172,000 allowances from the second compliance period (2012-2014) were also sold at $1.86 (the floor price);

5)  That amount is 57% of the 2012-2014 allowances offered for sale -- the lowest yield to date for this vintage of allowances -- and 100% of them were bought by just 4 compliance entities;

4)  In the 10 RGGI auctions, taken together, compliance entities have purchased 85% of all allowances sold;

3)  Due to trading on the secondary market, after the 10th auction purchases are settled, compliance entities will hold 95% of all RGGI allowances in circulation;

2)  All together, the 10 RGGI auctions have brought in more than $777.5 million for the 10 RGGI states;

and

1)  The RGGI states have collectively invested about 80% of the RGGI funds in strategic energy programs, most of which involve energy efficiency improvements in homes and businesses.   RGGI has created a website compiling the states' announcements on the success stories from these investments.

The next RGGI auction will be held March 9, 2011.  

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The cap in the nation's first mandatory cap-and-trade system is probably set too high.  As reported by ClimateWire this morning, it seems increasingly likely that participants in the Regional Greenhouse Gas Initiative (RGGI) will easily meet and beat RGGI's ultimate goal, even without any changes or reductions actually caused by the program.

RGGI's initial aim was to cut CO₂ emissions from large power plants in the 10-state region to 10% below 2005 levels by 2018.  This plan involved two stages: one with the cap stabilized at 180 million tons CO_2e from 2009-2014, and the second, from 2015-2018, with a cap declining by 2.5% each year.   However, in the two years that the program has been in action, emissions have already declined to 33% below 2005-levels.   Although the decline has been commonly attributed to the economic downturn, NYSERDA found that fuel switching by power suppliers from coal and petroleum to natural gas (cheaper than it was in 2005) has in fact had the greatest impact, contributing 31.2% of the decline. 

At a meeting on November 12, RGGI, stakeholders gathered to hear briefings on projections for future emissions, why the carbon footprint was overestimated thus far, and what changes need to be made to RGGI going forward.  Consultant IGF International reported that although emissions in the region are predicted to grow steadily into the future, they will stay well below RGGI's initial reduction target through 2030, even without additional reductions caused by the energy efficiency and renewable energy programs funded by RGGI itself.  Their data suggests that the RGGI cap would have to be tightened from 10% reductions by 2018 to 22% or higher, for the cap-and-trade system to have any impact at all. 

The RGGI member states are currently involved in evaluating the program, and could make changes to the cap, as well as the rest of the program, before the second compliance phase begins in 2012. It will be interesting to see what decisions they make over the next year.

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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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Now that the Senate has put an end to speculation about a federal cap-and-trade program, the laboratory of the states and patchwork of regional regulation seem even more important.   The Western Climate Initiative (WCI) will likely involve a little of both.

Yesterday, the WCI Partner Jurisdictions (seven US states and four Canadian provinces) unveiled their comprehensive strategy for a cap-and-trade program with the goal of reducing regional greenhouse gas emissions by 15% below 2005 levels before 2020. The program is planned to begin in 2012, although apparently only California, New Mexico, Quebec, Ontario, and British Columbia are on track to have trading systems operational by that date. Even so, these two states and three provinces account for 70 percent of the greenhouse gas emissions the WCI partners produce.

The report recommends standards for regulations governing allowances, creation and use of offsets, credits for early action reductions since 2007, and other design features of a cap-and-trade program, but does not itself dictate specific regulations. Instead, the regional goal will be reached through individual states’ and provinces’ implementation of separate programs that supply allowances for quarterly regional auctions. While this individualized approach makes sense given the wide diversity of settings and the fact that WCI crosses not only state but national boundaries, it does leave a large number of factors up to the individual jurisdictions.  

Among the details that are undecided is how many allowances will be at play (a critical issue and lesson learned from the implementation of RGGI). Each state or province will adopt its own budget and determine how allowances within that budget will be distributed to emitters – through allocations, direct sales or auctions. In yesterday's report and a more detailed one from early July, WCI recommends that each jurisdiction’s 2012 allowance budget be the expected 2012 actual emissions, rather than starting with an initial cut, but then begin to decrease (at a rate to be set by each jurisdiction), with another increase in 2015 when the cap expands to cover transportation fuels and residential and commercial fuels as well.  

Offsets would be more tightly defined by the regional structure: an offset certificate issued by a WCI partner jurisdiction must meet all recommended offset criteria and result from a project located in Canada, the US or Mexico. It is recommended that each jurisdiction restrict the use of offset certificates to 49% of aggregate emissions reductions – such a limit will be expressed as a portion of each emitter’s emissions that may be covered by offset certificates or allowances from other programs.  

The WCI partner jurisdictions seem to have adopted a number of RGGI’s features, including a quarterly regional, single-round, sealed-bid auction structure, 3-year compliance periods, unlimited banking of allowances, and an auction floor price.  But as the report notes, the partner jurisdictions expect auctions to be only one component of allowance distribution – different from RGGI, where nearly 100% of allowances are auctioned.  The portion of allowances that each jurisdiction submits to the quarterly regional auctions may vary across jurisdictions and may also change over time.  Such flexibility could allow each jurisdiction to address competitiveness and leakage issues more directly than a regional plan. 

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Not surprisingly, the secondary market price for Regional Greenhouse Gas Initiative (RGGI) allowances fell for the 4th quarter of 2009, as noted by RGGI Market Monitor Potomac Economics in their recent report.  Trading in RGGI allowances futures declined from 319 million allowances in the third quarter of 2009 to 127 million in the fourth quarter, despite the number of firms participating remaining the same.  Futures prices also declined 8% -- from $2.45 to $2.25.   Even so, futures prices remain notably higher than the clearing prices of the RGGI auctions, which were $2.19 and $2.05, respectively, in the September and December 2009 auctions.

One reason for the continuing decrease in RGGI allowance prices, both through auction and on the secondary market, is the steep decline in CO₂ emissions from the RGGI-subject power plants.   As highlighted in a recent report by Environment Northeast, due to the economic crisis, fuel switching energy efficiency programs, and renewable energy, emissions from those plants have fallen 34% since the start of the program, to just above 120 million tons of CO₂.  This is well below the current RGGI cap of 188 million tons, and even below RGGI's ultimate 2018 goal of 10% reductions from 2005 levels. As such, RGGI allowances will likely remain a surplus commodity well into the future. 

Even given these facts, though, RGGI allowances are far from worthless.  Particularly given that the House-passed ACES bill, as well as all of the front-runner energy and climate bills possibly considered by the Senate have contained provisions for the exchange of federal allowances for RGGI allowances, even the RGGI allowances that might not be needed by RGGI-covered entities could still be worth their weight in federal CO₂ credits sometime in the future.

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It may be time to learn a new acronym.  The 10 RGGI states, plus Pennsylvania and Washington DC have banded together to create the Transportation and Climate Initiative (TCI) -- a group that has pledged to create a plan to address the estimated 30% of greenhouse gas emissions on the eastern seaboard caused by the transportation sector. 

In a Declaration of Intent released Wednesday, the leaders of the environmental, transportation and energy agencies of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont and Washington DC, pledged to develop and implement a three-year work plan that outlines how the region can cut greenhouse gases from vehicles and improve efficiency of regional transportation systems.   The TCI builds on RGGI (which does not itself regulate fuels or transportation, but began the states' collaborative efforts on the issue of greenhouse gas emissions) and the 11-states' low carbon fuel memorandum of understanding signed in December.

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In the Regional Greenhouse Gas Initiative's (RGGI) eighth auction of CO₂ credits on June 9th, the clearing prices were the lowest yet – $1.88 for 2009-2011 credits and the auction floor of $1.86 for 2012-2014 allowances.  Despite these low prices, the auctions still brought in some $80 million.  In total, cumulative RGGI proceeds to be used by the 10 participating states for renewable energy, energy efficiency and low-income energy assistance programs now total $662.8 million.

RGGI's announcement of the auction results highlights some of the specific programs in which the states have invested, and the returns we are already seeing from these investments.  For example, in Connecticut, electric and gas energy efficiency programs, funded in part by RGGI proceeds, are producing more than $4 for every $1 invested.  New York reports a return greater than 8 to 1 for its investments in renewable energy systems.  And the predictions are even larger:  Massachusetts reports that energy efficiency programs, funded in part by RGGI, will generate roughly $6 billion in consumer energy savings in Massachusetts over the next 3 years. 

On the whole, the RGGI states are investing around 60% of the proceeds from the auctions in energy efficiency.  Energy efficiency measures such as building retrofits, heating system replacements and appliance upgrades are predicted to shave 20 to 30% off consumers' utility bills over the next few years. States are also investing in large-scale renewable energy development as well as programs to deploy distributed generation, such as solar energy and hot water systems on  homes, schools, and businesses.

Although participation and prices were both down for this second auction of 2010, all 2010 vintage and 2013 vintage allowances available for purchase were sold – a change from the previous two auctions, in which supply for allowances to be used in the 2012-2014 compliance period outpaced demand.   Perhaps due to the drop in the number of entities participating, electric generators subject to RGGI purchased 92% of the 2010 vintage allowances – up from 85% in March's auction – and 100% of the 2013 vintage allowances.

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Yesterday, Senator Lieberman (I -CT) confirmed that the climate bill that he, Senator Kerry (D-MA) and Senator Graham (R-SC) plan to announce next week will include preemption of state and federal initiatives, including EPA's Clean Air Act authority.  Leaving aside the potential in his statement for the bill to also preempt state renewable energy and efficiency programs, the goal of predictability and one nationwide cap-and-trade system is an approach that we endorsed a few weeks ago, and one that H.R. 2454 also contained, albeit with a 5 year moratorium, rather than a complete preemptive ban.

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What will happen to state and regional energy and carbon-related regulations if (perhaps when) federal climate legislation is enacted?  If the Attorneys General of California and 6 New England and Mid-Atlantic states have anything to say about it, very little.  

As E&E reported last night, the Attorneys General of Massachusetts, Delaware, Maine, Maryland, Rhode Island, Vermont and California sent a letter this week to Senators Kerry, Graham and Lieberman in which they urge the Senators to incorporate provisions in the climate bill expected to be announced later this month, which save existing state initiatives.  Drawing a parallel to California's emissions standards waiver under the Clean Air Act, they urge coexisting federal and State authority to spur energy independence and reduce global warming pollution.

Some suggestions make a lot of sense for both regulators and the regulated community: allowing time for industries participating in regional programs to transition to federal programs, providing for an exchange of RGGI allowances, and maintaining EPA's authority under the Clean Air Act to regulate in the absence of functional federal programs created by new legislation could all allow the transition between programs to flow more smoothly. 

However, their call to keep cap-and-trade initiatives like RGGI viable in the midst of federal cap-and-trade, and at most impose only a temporary moratorium for a fixed period of time, seems more like a land grab than good policy.  The AGs say it would provide a valuable incentive to ensure rigorous implementation and enforcement of the federal program.  No. Overlapping cap-and-trade programs would only create a mess.  A nationwide and comprehensive cap-and-trade program is clearly preferable, for both the economy and achieving reductions in carbon dioxide emissions. 

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Despite the relatively low clearing prices in the Regional Greenhouse Gas Initiative’s (RGGI) seventh auction of CO₂ credits on March 10^th -- $2.07 for 2009-2011 allowances, and the auction floor price of $1.86 for 2012-2014 allowances – cumulative RGGI proceeds to be used by the 10 participating states for renewable energy, energy efficiency and low-income energy assistance programs now total $582.3 million.

As reported in today’s announcement of the auction results, this half billion dollars is being funneled into state-run programs that make investments in energy efficiency, accelerate the deployment of renewable energy, and, at the bottom line, create thousands of jobs. In the report, RGGI highlights success stories from regional companies in sectors such as energy audits and weatherization, and the US Department of Energy’s statistic that every million dollars invested in building weatherization creates more than 50 jobs in installation and another 10 to 20 jobs in the production of energy efficient building materials.  Also notable for Massachusetts is DOER Commissioner Phil Guidice’s statement that energy efficiency programs funded in part by RGGI are expected to create or maintain nearly 4,000 jobs in Massachusetts in the coming three years.

This auction was RGGI’s first in 2010, and the first to offer new years’ allowances for sale. Participation increased in both auctions, perhaps as a result of the green shoots of the new economic recovery. 

Participation in the auction of 2010 vintage allowances, which may be used to cover CO₂ emissions from power plants in the first compliance period of 2009-2011, was robust, with 51 entities submitting bids to purchase 2.3 times the available supply of 40.6 million allowances. The clearing price of $2.07 is up from December’s low of $2.05, even though this auction offered 40.6 million allowances for sale, a significant increase from the prior two auctions offerings of roughly 28.5 million each. Eighty-five percent of the 2010 vintage allowances were purchased by entities regulated under RGGI or their affiliates.

Participation also increased in the auction of allowances to be used in RGGI’s second control period (2012-2014). Although Wednesday’s auction marked the second time that supply outpaced demand for these allowances, the quantity of allowances for which bids were submitted increased 31% from December’s Auction 6 of 2012 vintage allowances. Ninety-eight percent of the 2.1 million 2013 vintage allowances offered for sale sold to nine generators regulated under RGGI at the $1.86 mandated auction floor price. As with the unsold allowances from December, the additional allowances may be sold at future auctions, or a state may choose to retire them. 

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The states participating in the Regional Greenhouse Gas Initiative (RGGI) announced the results of their 6^th quarterly auction, held on December 2^nd, which brought in the lowest prices for carbon dioxide (CO₂) allowances yet. Wednesday’s auction also marks the first time that RGGI allowances offered for sale outnumbered demand. Only 1.6 million of the roughly 2.1 million allowances for the 2012 vintage sold at RGGI’s required price floor of $1.86. Depending on each state’s regulations, these unsold allowances may be sold in future auctions, or a state may choose to retire them.  Although retirement this early in the game is a somewhat remote possibility, it will be interesting to see whether this will have an impact in RGGI's second compliance period, 2012-2015. 

Prices for the nearly 28.6 million 2009 vintage allowances sold fell from the September auction’s clearing price of $2.19 to $2.05, down significantly from June’s clearing price of $3.23. Despite these low prices, the number of participants in the 2009 vintage auction actually increased significantly: 62 entities, compared to 46 who participated in September’s auction. 

In the 2012 vintage offering, however, the quantity of allowances for which bids were submitted decreased 32% from September, resulting in bids for only 74% of the supply of 2012 allowances offered for sale. As in September’s auction, no non-compliance entities (businesses or persons not regulated under RGGI) participated in the 2012 vintage auction.  In comparison, non-compliance entities submitted 38% of the bids for 2012 allowances in the 4^th RGGI auction, back in June. 

The range of bid prices in the 6^th auction, not surprisingly, was also the lowest that RGGI, Inc. has reported. Bid prices for the 2009 vintage allowances ranged from the minimum clearing price of $1.86 to just $5.00, down from a high of $12.00 in the June and September auctions,  while bid prices for the 2012 vintage allowances topped out at $2.41, down significantly from March’s high bid price of $4.40.

As we said after prices fell in September’s auctions, the national (and international) efforts toward developing carbon regulation that would preempt RGGI are likely having an impact on bidders’ perceptions of RGGI’s future. Combined with additional reports that the RGGI allowance pool is over-funded, these low prices are not too surprising, and will likely continue. 

Nonetheless, RGGI is still bringing in a lot of money. The report highlights that the RGGI program has brought in more than $494.4 million over the last 15 months of auctions for investment in a state-specific programs that are targeted to reducing emissions, building the clean energy economy, and saving consumers money. If you’re interested in where the funds are going in your state, check out RGGI’s convenient summary.

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New York Governor Patterson last week announced a plan to divert $90 million in funds raised from New York’s share of RGGI auctions to deficit reduction. The reaction was not positive from environmental NGOs, who are understandably concerned about the “precedent-setting nature of this move.”

It shouldn’t really be surprising in these times of fiscal challenge for state governments. It’s no different than what happened with the diversion of money from tobacco settlements away from smoking prevention programs to deficit reduction.

The interesting questions will be whether other states follow New York’s lead and whether this has any effect on the debate in Congress regarding preemption of state and regional trading programs in the context of a federal cap-and-trade program.

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The Regional Greenhouse Gas Initiative (RGGI) has released the clearing prices from its 5th quarterly auction of CO₂ allowances, held on September 9, 2009.  Prices for the 28.4 million 2009 vintage allowances sold fell sharply from the June auction's clearing price of $3.23 to $2.19, and the 2.1 million 2012 vintage allowances sold for only $1.87, just one cent above the market floor of $1.86, and well below the $3.05 that they earned at the March 2009 auction, which was the first at which these later vintage allowances were offered for sale. 

Interestingly, while the number of participants in the 2009 vintage auction remained relatively steady, no non-compliance entities (persons not regulated under RGGI) participated in the 2012 vintage auction.  These participants had amounted to 38% of the bids for 2012 allowances in the June auction. 

RGGI, Inc. has also released the range of bid prices in the 5th auction, allowing some insight into how the players value these allowances.  Bid prices for the 2009 vintage allowances ranged from the minimum clearing price of $1.86 to $12.00, the same as in the 4th auction, while bid prices for the 2012 auction ranged from $1.86 to just $3.00, down from June's high bid price of $3.84 and March's high bid price of $4.40.

Wednesday's auction was the first since the passage of ACES by the House in late June.  ACES provides for an even exchange of RGGI allowances for national allowances, something that could increase the value of RGGI allowances going forward, as it removes some uncertainty.  Nonetheless, pundits had predicted lower prices from this auction for a number of reasons, including doubt about the likelihood that the Senate will pass a national cap-and-trade program

The decrease in prices and lack of participation in the 2012 auction is also interesting given a report released on Wednesday by Point Carbon which predicts that actual emissions from the RGGI-regulated northeastern power plants will already be much lower than the RGGI cap, set at 188 million allowances per year.  According to Climate Wire, the report notes that the economic downturn, combined with a cool summer and warm winter reduced the amount of fuel for electricity used in the 10-state region. Falling natural gas prices have also prompted generators to switch away from more carbon-intensive fuels like coal and oil to natural gas.  The report predicts that the CO₂ emissions from the 233 power plants regulated under RGGI will emit 155 million tons this year, well below the cap.

Although the RGGI cap will begin decreasing by 2.5% each year in 2015, the years until then may provide an opportunity for regulated generators and other interested bidders to stockpile  allowances.  Given that RGGI allowances may be banked for future use without restriction, such a large number of allowances being banked could keep prices depressed for some time.

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At the fourth auction of CO₂ allowances under the Regional Greenhouse Gas Initiative (RGGI) on June 17, participation was certified as robust by market monitor Potomac Economics, but auction prices decreased. Last week’s clearing price for 2009 vintage CO₂ allowances was $3.23 per allowance, only slightly above the clearing price of $3.07 at RGGI's initial auction in September 2008, and below March’s clearing price of $3.51.  The 2.1 million 2012 vintage allowances offered for sale in last week’s action sold for $2.06, almost one-third below the $3.05 price that they earned at the March auction, which was the first at which these later vintage allowances were offered for sale.  

RGGI, Inc. has released the range of bid prices from the fourth auction, allowing some insight into how CO₂ is valued by the players in these auctions.  Bid prices for the 2009 vintage allowances ranged from $1.86 (the minimum clearing price) to $12.00, up $2 from the maximum bid in the March auction, while bids for the 2012 vintage allowances ranged from $1.86 to $3.84, down from March’s high bid price of $4.40. Participation in the 2009 vintage offering remained high at 54 entities, while participation in the 2012 vintage auction was down from March’s 20 entities to only 13.

Interestingly, the share of non-compliance entities (persons not regulated under RGGI) who participated in the 2012 vintage auction rose this time, with only 62% of the bids submitted in that auction coming from compliance entities (power plants regulated under RGGI).  Even so, regulated generators and their affiliates continued the trend from previous auctions of winning the vast majority of the allowances – 85% of 2009 allowances and 81% of 2012.

The difference in the clearing price for the 2009 vintage and the 2012 vintage is not surprising. RGGI allowances may be banked without limitation and used in future years, making the 2009 allowances more valuable than later vintages.  What is notable is the drop in both participation in the 2012 vintage allowance and the clearing price (nearly 33% less than it was only 3 months ago). It seems that many market participants are uncertain about the value of the 2012 allowances, given the possibility that RGGI may be replaced by a national cap-and-trade program whose provisions are not yet known. 

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Thinking about how to take advantage of funding for energy efficiency retrofits from the federal stimulus package, state-level programs like Massachusetts’ Green Communities Act, or even utility-funded programs?  You should also think about whether your actions will create another income stream – offsets under the Regional Greenhouse Gas Initiative (RGGI) – and whether taking funds will prohibit the creation of offsets when the project is finished.

RGGI, Inc. this week released model applications for offset projects which could create interesting incentives if implemented by each of the RGGI states. Unlike some of the offset provisions proposed under ACES, all of the RGGI offset categories are outside of the electric generation sector that RGGI regulates. The 5 categories of emission reductions that are eligible for offsets in RGGI include landfill methane capture and destruction; reductions in sulfur hexafluoride in the electricity transmission and distribution sector; sequestration of carbon due to afforestation; avoided methane emissions from agricultural manure management, and, most interestingly, reductions or avoidance in CO₂ emissions from natural gas, oil or propane in residential or commercial facilities due to energy efficiency in the building sector. 

RGGI has a notoriously strict stance on additionality which certainly shows in the application for energy efficiency offsets. To qualify, the applicant must certify that the project did not receive any funding or incentives from any state run programs or programs funded with RGGI auction proceeds. Given that a large portion of the money from RGGI auctions is being directed by the states toward energy efficiency improvements, being able to provide this certification may be difficult. The application also notes that any renewable portfolio standard (RPS) attributes generated by the offset project must be transferred to the state regulatory agency, rather than sold separately. 

Energy efficiency projects that can qualify for offsets are not necessarily complex. The types of energy efficiency projects that can qualify for offsets include:

• Improvements in the energy efficiency of combustion equipment that provides space heating and hot water, including a reduction in fossil fuel consumption through the use of solar and geothermal energy
• Improvements in the efficiency of heating distribution systems, including proper sizing
• Installation or improvement of energy management systems
• Improvement in the efficiency of hot water distribution systems, including reduction in demand for hot water
• Measures that improve the thermal performance of the building and reduce the building envelope air leakage
• Measures that improve the passive solar performance of buildings or utilize active heating systems using renewable energy
• Fuel switching to a less carbon-intensive fuel in combustion systems, including the use of liquid or gaseous eligible biomass (but not conversions to electricity).
  

On the other hand, the projects must achieve very high efficiency gains to qualify. Whole-building energy projects must be 30% above ASHRAE 90.1-2004 standards, and retrofit projects that commenced after January 1, 2009 must show that the energy conservation method they employ has a market penetration rate of less than 5%, although the market or class of buildings can be defined by the applicant. In addition, the baseline from which reductions in CO₂ are measured is based on a combination of the current building code and the actual equipment to be replaced, so not all of the gains from retrofits can be certified as offsets. 

If your summer home improvement efforts this year include upgrading to a state-of-the-art boiler, you didn’t take RGGI funds from the state to do so, and you are persistent enough to endure certification and verification of the reductions, you could qualify for up to 10 years of offset credits to sell to electric generators in the 10-state region. It is certainly something to think about.

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I finally found time to review the 648-page “discussion draft” of the “American Clean Energy and Security Act of 2009” released by Representatives Waxman and Markey this week. It is fair to way that, though release of the draft may be an important way-station on the road to a climate change bill, there remains a lot of work to do. While the draft includes some important markers that are likely to set boundaries on what might be included in the final bill, it is at least as notable for what is omitted than for what is included. Here are some highlights of Title III of the bill, which addresses climate change: (We hope to post soon about the energy titles as well.)

·  No surprise here – the bill would create a cap and trade program requiring facilities with emissions of more than 25,000 tons per year of CO₂ equivalents to have allowances in order to continue such emissions.

·  Allowances would be allocated so that emissions would decrease 20% from 2005 levels by 2020 and 83% from 2005 levels by 2050

·  The bill contains a framework for an auction system, but it does not specify what percentage of allowances will be auctioned or what will happen to the proceeds.

·  There are several measures designed to address concerns about multiple, conflicting, or inefficient regulatory programs:

o  The President is directed to “harmonize” “to the extent practicable” DOT fuel efficiency standards, EPA regulations, and California regulations regarding motor vehicle emissions

o  Other than regulations implementing the act, EPA is precluded from using existing authority to regulate greenhouse gases as hazardous air pollutants or under NSR rules (unless they have non-climate change related impacts) and precludes listing of greenhouse gases as criteria air pollutants based on their impact on climate change

o  State cap and trade programs would be preempted, at least from 2012 through 2017. It appears as though allowances already issued under RGGI will be folded into the federal program

Overall, this looks like a measured approach designed to win support from both sides. Environmentalists will be pleased by firm caps, including a 2020 cap more stringent than some have proposed. Regulated industries will be pleased by the attempts to harmonize standards on motor vehicles, preclude Clean Air Act regulation of greenhouse gases, and to preempt state or regional cap and trade programs.

If I had to guess, I’d say that this bill marks the death knell for regulation of greenhouse gases under existing Clean Air Act authority (assuming that a bill gets passed; if Congress fails to act, then EPA certainly will use existing authority); it is probably also the beginning of the end of state and regional programs.  On both of these issues, If Representatives Waxman and Markey are already staking out this position, then it seems difficult to imagine a final bill that doesn’t incorporate these elements of the draft bill.  As to the rest, time will tell.

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RGGI, Inc. the operators of the Regional Greenhouse Gas Initiative (RGGI) today announced the results of its third auction of CO₂ allowances, held on March 18, 2009.  The auction offered allowances from all ten states participating in RGGI -- Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. 

 As we noted earlier, new for RGGI’s third auction was that the states offered just under 2.2 million allowances for the 2012 vintage, providing a first-look at future market prices for RGGI allowances. These 2012 allowances sold at a clearing price of $3.05, while the 31.5 million 2009 vintage allowances offered sold at a clearing price of $3.51 per allowance, up nearly 4% from the December 17^th auction’s clearing price of $3.38 and significantly above the initial auction’s clearing price of $3.07. This increase seems particularly notable given current economic conditions.

For the first time, RGGI, Inc. also released the range of bid prices, allowing some insight into how CO₂ is valued by the players in these auctions. Bid prices for the 2009 vintage allowances ranged from $1.86 (the minimum clearing price) to $10.00, while bids for the 2012 vintage allowances ranged from $1.86 to $4.40. Regulated generators and their affiliates continued the trend from the first two auctions of winning the vast majority of the allowances – 78% of 2009 and 93% of 2012.

It is interesting, though not surprising, that 2009 vintage allowances raked in higher bids than the 2012 vintage allowances. Given that RGGI allowances may be banked without limitation and used in future years, the 2009 vintage allowances are arguably more valuable. Even so, the fact that the 2012 vintage allowances sold for $3.05, lower even than the first RGGI auction’s clearing price of $3.07, indicates some lack of confidence in those allowances’ future value. The 2012 allowances are the first to fall within RGGI’s second three-year compliance period (2012-2015), which is significant because 2015 is the first year that the RGGI cap begins its annual process of ratcheting down 2.5%. One might think that this feature would make the allowances more valuable.  However, there remains significant uncertainty regarding what the carbon emission market will look like in 2012, whether there will be a national cap-and-trade system, and whether RGGI will still exist. Given that uncertainty, this relatively low price is understandable.

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As the New York Times reported on Friday, New York Governor David Paterson may increase the number of carbon allowances that New York gives to power plants for free, creating a significant policy departure from New York's earlier approach to RGGI.   New York, together with seven other RGGI states, had earlier committed to auction nearly 100% of its allowances.  As such, New York gave away only a small portion of its allowances this year (1.5 million out of 62 million) through a program designed to lessen the impact of RGGI on the price of electricity. Paterson's proposed adjustment would increase that number four-fold, giving away 6 million allowances to regulated power plants, at an estimated value of $21.9 million per year.  That money could have otherwise been used by the state to fund energy efficiency programs.  

If New York were to change its allocation structure, the state would have to reopen its regulations, and any change would require notice and public comment.  As a result, any changes would not impact the next auction, scheduled for March 18th, or, apparently, the following two in June and September.  Although New York controls 31% of the allowances in the RGGI program, this potential shift would not affect overall carbon emissions from power plants.  Both the amount of allowances allocated to New York and the total number of allowances in the RGGI program are capped. 

Regardless of the number of allowances now to be allocated, the change is potentially politically significant. The statement from the Governor's office is framed in neutral language -- "we have an obligation to monitor how a program is working and advance any needed changes to make the program more effective."  Nonetheless, one wonders whether the lawsuit filed last month by Indeck against New York, alleging that the state agencies did not have the authority from the New York legislature to implement the program, played any part in the Governor's decision.  That lawsuit and this potential change in New York's allocation structure are both underpinned by the idea that New York's implementation of RGGI adversely affects against electric generators that are bound by long-term fixed-price contracts, and cannot pass the added price of allowances on to consumers. 

New York's shift might also make it more difficult for the other RGGI states to stick with their 100% auction, in face of pressure from industry groups to increase allocation, though, as ClimateWire reports, some state leaders have discounted the potential impact. It also remains to be seen what effect this will have on the national debate.  As we noted last week, the debate over how a cap-and-trade or carbon tax would operate is beginning to heat up.  Since RGGI is the nation's first CO2 cap-and-trade system to be implemented, experiences with RGGI are likely to have a significant impact on national legislation.

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RGGI, Inc. announced today that its third auction of CO₂ allowances will be held on March 18, 2009, and will offer allowances from all ten states participating in RGGI -- Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. The sealed bid format and the reserve price of $1.86 remain the same as the previous two auctions, but one big change is in the works.

New for this auction:  the participating states will offer approximately 2.2 million allowances from vintage 2012, in addition to the 31.5 million CO₂ allowances from 2009. These 2.2 million allowances from 2012 comprise about 5% of that year's cap, and will be sold in a separate, but parallel offering from the 2009 allowances.  The offerings occur simultaneously from 9 AM to 1 PM on March 18, a bidding window that is 1 hour longer than in previous auctions. 

The sale of 2012 allowances could offer an interesting insight into how bidders perceive the future of carbon cap and trade and RGGI itself. Will the 2012 allowances go for a higher price than the 2009 vintage? On one hand, since RGGI allowances may be banked without limitation into future years, a 2009 allowance is arguably the most valuable of them all.  On the other hand, 2012 allowances are our first taste of allowances within RGGI's second three-year compliance period (2012-2015), a period which spans 2015, the first year that the RGGI cap decreases by 2.5%.  Then there’s the question of RGGI’s future amid federal legislation. We might have a national cap-and-trade system by 2012, or some other system entirely, and it might (or might not) allow for the exchange of RGGI allowances.

We shall see. RGGI, Inc. plans to announce the results of the third auction on March 20.

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The Union of Concerned Scientists (UCS) released a report on Friday that concludes that the cuts in emissions from power plants within the Regional Greenhouse Gas Initiative (RGGI) region may be compromised by power generated outside the RGGI region and imported into the region. This problem is called "leakage" in carbon-capping jargon, and it is a problem for which RGGI, Inc. has never found a satisfying solution.

The UCS report highlights that although RGGI caps the emissions of power plants in 10 Northeastern states, ratcheting down emissions to 10% below 2005 levels by 2018, it does not preclude utilities that supply electricity to homes and businesses within the region from buying more electricity from coal-fired plants outside the region. UCS estimates that use of the excess capacity of existing coal plants to the west and south of the RGGI region -- the equivalent of 15 new coal plants -- could produce emissions greater than three and a half times the expected cuts of CO₂ emissions from RGGI. With the addition of the six coal-fired plants that are under or near construction in states near the northeast, emissions from outside the region could equal 140% of RGGI's reductions. The problem comes not only from the fact that cost of electricity within the RGGI region is already higher than in surrounding states, but also from planned efforts to expand the capacity of the grid, allowing less expensive power produced in coal-intensive states like Ohio, Pennsylvania and West Virginia to be imported into RGGI states at higher levels.

The report makes 4 suggestions for RGGI states to help "plug the leak":

• Limit the ability of in-state electricity suppliers to contract for power from more polluting plants, whether inside or outside the region.
• Cap global warming emissions for the entire portfolio of each local electricity supplier.
• Together or individually, RGGI states could require local electricity suppliers to account for global warming emissions from electricity produced outside the region as well as inside it, offsetting the advantage of imported coal power. States could, for example, require local suppliers to offset any increases in emissions linked to higher imports by expanding their investments in energy efficiency, renewable energy, or another public good.
• RGGI states could insist that proposed transmission projects to expand the import of power from states with abundant coal consider the Northeast’s goals for cutting global warming pollution.

The majority of these suggestions would require new legislation -- as the RGGI implementing statutes in each of the states only reach generators above 25 MW, not utilities -- but several states have already moved to require local electricity suppliers to account for greenhouse gas emissions generated by the power they sell, whether it is produced within the state, within the RGGI region, or imported. Such a provision is expected to be included in Massachusetts' second round of regulations implementing the Global Warming Solutions Act (see Thursday's post for more information), and New Jersey's draft report on implementing its Global Warming Response Act suggests managing imports as a solution to the issue of leakage.

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RGGI, Inc., the operators of the Regional Greenhouse Gas Initiative (RGGI) announced today that the second auction has proceeded smoothly and as planned.  All 31,505,898 allowances offered for sale at Auction 2 on December 17 were purchased at a clearing price of $3.38 per allowance.  This price is above the first RGGI auction's clearing price of $3.07, and in line with recent prices for RGGI futures on the Chicago Climate Futures Exchange, which traded Monday at the same price. Auction 2 was the first to feature allowances from Delaware, New Hampshire, New Jersey, and New York, a factor which might have caused the increase in price.

RGGI's market monitor Potomac Economics noted that the majority of winning bidders were compliance entities or their affiliates, as in the first auction.  So far, it seems like the concerns about market manipulation and entities taking advantage of RGGI's 100% auction structure remain unfounded.

RGGI will release more data January 6th, including the names of the "potential bidders" who qualified and filed an intent to bid in Auction 2 (whether or not they actually bid). 

Meanwhile, Governor Patrick's office has announced that Massachusetts will spend its $14.8 million share of Auction 2's $106.5 million total proceeds as set forth in the Green Communities Act, or more specifically:

• $2.4 million for 2008 utility-administered energy efficiency programs
• $5 million for start-up funds for the Green Communities program
• $2 million for heating system replacements for low-income households
• $400,000 for administrative and vendor costs for the RGGI auction
• $5 million for a new program, Energy Efficiency Skills and Innovation Institute providing job training for energy auditors and seed grants for innovative delivery methods of efficiency

RGGI compliance obligations for fuel-fired generators over 25 MW begin January 1, 2009.  The next auction will be March 18, 2009.

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On the eve of the second RGGI auction, it is reasonable to ask what the trend is in CO₂ emissions in the RGGI states. Environment Northeast just issued a report which seeks to answer that question. According to ENE, which utilized data from EPA and the RGGI states, CO₂ emissions in the RGGI states through the third quarter of 2008 are trending 16 percent below the RGGI cap.

As ENE notes, both oil and coal prices were extremely high during this period, so there is no guarantee that these low emission levels will be reflected in data for the fourth quarter 2008 or in 2009. However, the cause of the recent price drop – lowered demand resulting from the contraction in economies worldwide – suggests that emissions will probably be low in 2009 as well. If total purchases of oil drop, it does not matter whether the cause is a shift along the demand curve due to higher prices or a shift in the demand curve due to lower economic output (though it is certainly true that, even with lower demand for energy overall, decreases in oil and coal prices will lead to shifts towards coal and oil).

The critical point to remember in all this is that businesses which have significant CO₂ emissions cannot be expected to reduce those emissions efficiently unless clear and stable price or regulatory signals are sent. Therefore, I for one hope that the ENE report does not lead regulators to conclude that the cap is too high and should be reduced. If we do that, do we then raise the cap again if emissions exceed the cap for more than the expected amount? What is needed is as stable a downward trajectory in greenhouse gas emissions as we can manage.

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The operators of the Regional Greenhouse Gas Initiative, or RGGI, announced today that all of the 12,565,387 CO₂ allowances offered for sale at the first RGGI auction on September 25 have been purchased at a relatively low price of $3.07 per allowance. This is only marginally above the auction reserve price of $1.86 per allowance, and below recent prices on the Chicago Climate Futures Exchange.

RGGI did not announce the names of the winning bidders, but did note that there were 59 participants in the auction, from the “energy, financial and environmental sectors.” In total, the bidders sought to purchase more than 51 million allowances, or approximately four times as many as were offered. 

The auction was administered by World Energy Solutions, Inc., and RGGI also retained an independent market monitor, Potomac Economics, to oversee the auction. Potomac Economics stated that most of the allowances were purchased by compliance entities or their affiliates.  Given that RGGI seems here to stay, at least in the absence of federal cap and trade legislation, it is good to know that fears that allowances would be bought up by someone seeking either to control the market or to put fossil fuel generators out of business seem to have been laid to rest, at least for now, though we won’t really know how well RGGI is working until we see who the winning bidders are and until RGGI gets a few more auctions under its belt without incident.

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