The first mandatory carbon cap-and-trade program in the United States has generated about $38.58 million from its first auction of greenhouse-gas emissions allowances, participating states said Monday.
The Regional Greenhouse Gas Initiative, which is made up of 10 northeastern states, held its first auction Thursday and sold all of the roughly 12.57 million permits at $3.07 each. The permits allow power-plant operator to emit up to a ton of carbon dioxide.
The price for the permits was lower than the "$4-something" that some had expected, according to The Wall Street Journal's Environmental Capital blog, although it was higher than the minimum bid price of $1.86 per ton. By comparison, European allowances are trading at about $37 each.
Companies can buy or sell these allowances in order to meet the emissions requirements set by their states. The emissions requirements will take effect Jan. 1, 2009.
The cap-and-trade program aims to encourage industrial polluters to curb emissions by setting emissions caps and requiring them to pay for additional permits if they emit more than allowed. Companies that pollute below the caps can make money by selling their allowances.
The idea is to limit and later reduce the total amount of carbon dioxide being emitted in the participating states, essentially putting a price on carbon to give companies a financial incentive to reduce their emissions.
The European Union has run its carbon cap-and-trade program since 2005. Although the EU now doles out the allowances for free – and companies make or spend money by selling or buying them among themselves – it's considering auctioning off most of the permits starting in 2013.
The RGGI is the first government-regulated carbon cap-and-trade program in the United States, which already has several voluntary programs, such as the Chicago Climate Exchange.
Critics said the RGGI trading program doesn't go far enough to cut emissions because it only covers power plants and not other industrial operations, such as oil refineries.
A more aggressive carbon-trading program would come from one being created by the Western Climate Initiative, a group of seven western states and four Canadian provinces. Last week, the WCI, issued an outline for the program, which will cover the electrical power, transportation and other industrial sectors.
The WCI has proposed to auction a minimum of 10 percent of the allowances in 2012 and 25 percent by 2020. The states and provinces can decide individually whether to auction beyond the minimum levels.
California, a WCI member, plans to hold a meeting with several countries, including China and India, in November to talk about reducing greenhouse-gas emissions. Speaking at San Francisco's Commonwealth Club on Friday, Gov. Arnold Schwarzenegger criticized the federal government for being too slow in enacting legislation to reduce global-warming-related emissions (see Earth2Tech post).
The proceeds from the RGGI auction will go to the six member states offering the permits: Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont. The states plan to use the money to fund energy-efficiency and renewable-energy programs.
The permits sold last week are good to use in any state, not just those offering the allowances. Other RGGI states are New York, New Jersey, Delaware and New Hampshire, which didn't finalize the necessary legislation in time to participate in the first auction.
The RGGI has set an overall cap of 188 million tons of carbon-dioxide emissions per year from 2009 to 2014. The cap is roughly 4 percent above the annual average among RGGI states between 2000 and 2004. The limit will drop by 2.5 percent per year from 2015 to 2018 – the result is expected to be a 10 percent reduction in carbon-dioxide emissions from 2009.
The growing popularity of emissions-trading programs has spawned markets for selling futures contracts. The New York Mercantile Exchange and the Chicago Climate Futures Exchange both started futures-trading programs based on RGGI (see NYMEX to Trade Carbon-Emission Allowances).
The next RGGI auction is scheduled for Dec. 17. The RGGI plans to hold quarterly auctions from 2009 through 2011.