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.