The Regional Greenhouse Gas Initiative, the first legally binding cap-and-trade system in the hemisphere, kicked off yesterday with the world's largest carbon credit auction. The program immediately failed.
I don't know anything about the results of the auction, which won't be made public until Monday, but I do know that whatever happened, RGGI is a great big failure. I know this because journalists prepared its obituary weeks ago.
The New York Times recently explained that RGGI is a failure because the carbon price is too low, "undermining a concept that is being watched carefully by the rest of the country." The very same article helpfully explained that RGGI might also fail because the carbon price is too high. "If consumer costs rise ... it could tarnish the cap-and-trade concept." Yes: tarnished and undermined.
The Wall Street Journal also warned not to expect anything from RGGI, because the carbon price will be too low to stimulate the development of either of the two known technologies that can supplant coal: nuclear power or ... coal. Clean coal, that is.
In the meantime, the rest of us are waiting to see how the program actually comes off. It's true, the starting carbon price is expected to be low, possibly around $4 per ton of CO2 emissions, which is above the price floor of $1.86 per ton, but significantly below carbon prices in Europe. The low starting price is partly by design -- regulators sensibly want to see how the market functions before ratcheting down the cap -- but is also due to an unexpected drop in greenhouse gas emissions that has resulted in an overallocation of allowances.
Still, though, is $4 really too low to have any effect? If any journalist is reading, I have a story idea. The New England states that are participating in today's RGGI auction also recently set up a less-heralded but no-less-intriguing auction on the electricity supply side. The program is called the Forward Capacity Market, and one important thing it does is level the playing field between electricity suppliers and energy efficiency programs.
Four dollars per ton is certainly not enough money to wave clean coal into existence, but it could put a helpful thumb on the scales for energy efficiency. Are RGGI and FCM expected to interact? If so, what are the implications for the U.S. as a whole? As we stare down a recession, might such linkages allow us to pursue economic and environmental objectives simultaneously?
Perhaps there's nothing here, but that obit's got to be getting a little bit boring to write. How about it?
‘Copenhagen Diagnosis’ offers a grim update to the IPCC’s climate science
Making buildings more efficient: rationalizing retrofit markets
Making buildings more efficient: looking beyond price
Comments
View as Flat
Sean Casten Posted 7:18 am
26 Sep 2008
On top of that, the allocations distributed by state were the result of a rather complex political settlement, tied only by happenstance to the actual emissions in the state. In theory, they took an "allocation to generation" methodology, whereby the allocations are set based on historic CO2 production. However, this put states like Vermont at a steep disadvantage, because they have such little CO2 emissions per MWh of power production from >25 MW power plants. (VT generation is dominated by a single nuclear facility in the southern end of the state). VT therefore got an allocation well in excess of it's actual in-state emissions, while others got less.
The result of all of that is that it's very hard to say exactly who has an incentive to participate in RGGI and to what degree - some folks are long on allocations, some are short, some chose to allow non-power carbon sources and sinks to participate, some didn't... whether this leads to a net upward or negative pressure is damned near random, and certainly not a very efficient way to price carbon.
As I say, goofy.
Permalink
rsmith02 Posted 4:51 am
29 Sep 2008
RGGI= 25MW or greater generation, period. So far, RGGI only has a few categories of offsets and none are power sector-related, and I don't think that would be allowed.
RGGI's price is a little over $3/ton, so I doubt offsets will be terribly attractive anyway.
I'm not sure if the state by state differences matter a lot as carbon is tradeable throughout the 10 state region. A ton is a ton is a ton. The important thing is that the system as a whole is overallocated as actual emissions are lower than expected.
The best news is that almost all allowances are getting auctioned so whoever needs them gets to pay for the privilege.
Permalink