Northeast states’ first carbon auction goes smoothly despite financial crisis
Carbon allowances sold for $3.07 per ton in the nation’s first regional cap-and-trade auction, auction officials said Monday. The price was lower than futures markets had predicted but higher than the minimum price some had feared.
The Regional Greenhouse Gas Initiative auction held last Thursday sold all of the 12.6 million allowances offered in this first bidding. Power plants in 10 northeastern states will have to acquire allowances equal to 188 million tons of carbon dioxide, the “cap” set for plants’ 2009 emissions in the region. RGGI will sell the allowances in quarterly auctions, until 2014, when the cap will be reduced by 2.5 percent per year.
“I’m very satisfied with the first auction,” said economist Tom Tietenberg, an expert on emissions trading and a trustee of the fund set up in Maine to use the auction revenues for energy-efficiency programs.
“The initial sale was robust. The prices are reasonable. They weren’t at the minimum floor price,” he said by telephone. “There was a concern that many of the allowances might not be sold and people would sit on the sidelines. None of that happened.”
The RGGI auction rules set a minimum price of $1.86 per ton for the auction, and some had feared the sealed bids would not exceed that, since cold weather and a slower economy in the last couple of years have left power-plant emissions lower than the RGGI cap. Futures markets in New York and Chicago had been trading allowances at between $4 and $5 a ton, speculating that the price would go up as allowances were bought and traded.
“I think this price showed pretty cautious behavior,” said Dallas Burtraw at Resources for the Future, a nonprofit environmental research organization based in Washington. “We’re coming out of two weeks of enormous financial uncertainty. One of the major players in the market, Constellation Energy, just got bought out. People did not know what would happen.”
RGGI officials said Monday that 59 bidders submitted sealed bids, seeking four times the number of allowances sold in this auction. The names of those bidders have not been announced; under RGGI rules, companies and organizations other than power-plant operators can bid on the allowances to hold them for trade and resale to power companies.
Pete Grannis, chair of RGGI, called the participation a “strong start” that successfully set a price on carbon. “This will send a clear market signal to support the investment in clean energy technologies,” he said.
RGGI’s cap on pollution will gradually tighten until greenhouse-gas emissions from power plants are reduced 10 percent by 2019, and the proceeds of the auctions will raise millions of dollars for energy-efficiency programs run by the 10 states.
“This winter, with high prices, is a grave concern. It’s considered by some an actual emergency,” said Tietenberg. “We are going to try our hardest to get this money into programs that will help citizens this winter.”
Dan Genest, a spokesperson for Dominion Power, which owns three plants in New England, said the price of allowances in this auction was “about what we expected.”
A spokesperson for the Independent Power Producers of New York, Chris LaRoe, said the uncertainty about the price was a problem for power-plant owners. “An inability to predict operating costs can send a chill through the investment community,” he said. “It’s very hard to plan going forward when you can’t predict your costs.”
Derek Murrow, director of policy analysis for the nonprofit Environment Northeast, said that because of the recent drop in CO2 emissions in the region, “a low price makes sense to us in this context.” The greater benefit, he said, is in the start of carbon trading.
“It really is the first major auction of emissions allowances,” he said. “The fact that it went smoothly and RGGI is showing that an auction can function, that’s the significance.”