RGGI Completes First Cap-and-Trade Auction Since Reducing CO2 Cap by 45 Percent

Extreme, atypical weather continues to take an unusually heavy toll on the U.S. economy and society this winter, patterns consistent with forecasts made by the world's leading climate scientists. Those same scientists have been urging world leaders to take action and proactively invest in climate change mitigation and adaptation initiatives for at least two decades.

When it comes to mitigating climate change, reducing carbon and greenhouse gas (GHG) emissions is paramount. Here in the U.S. in 2009, a total of nine Northeastern and Mid-Atlantic states joined in launching the Regional Greenhouse Gas Initiative (RGGI), a power sector emissions cap-and-trade market whereby the proceeds of emissions allowance auctions are invested in energy efficiency, renewable energy and other programs of benefit to consumers.

On March 5, RGGI completed its 23rd auction of CO2 allowances -- the first since a new, much lower cap on CO2 emissions from the region's power plants (those with capacity of 25 MW or more) was set in January. This year's emissions cap of 91 million tons of CO2 is 45 percent lower than last year's limit of 165 million.

RGGI CO2 emissions reductions back on track

Why such a drastic reduction in this year's CO2 emissions cap? As Jeff Spross of Climate Progress explains in a March 7 post, a flatlining secondary market price prompted the RGGI board to take action.

“Starting in 2010, the cost of the permits in RGGI’s auctions flatlined at just under $2 per ton. At such a low price, the incentive to cut was low-to-nonexistent — a sign that RGGI’s cap was so high it wasn’t reducing carbon emissions beyond what business-as-usual would’ve done.”

The results of the March 5 auction were encouraging. RGGI auctioned more than 23.491 million CO2 allowances at a clearing price of $4 per allowance, according to an RGGI press release.

The total sold included all 18.491 million allowances offered for sale by the nine RGGI states plus the entire 5 million cost containment reserve (CCR) allowances allocated for 2014. CCR allowances are only available for sale if CO2 allowance prices exceed certain levels each year ($4 for 2014).

As Kenneth Kimmell, chair of the RGGI board of directors and commissioner of the Massachusetts Department of Environmental Protection, elaborated:

“The results are what we expected—there was an increase in the allowance price, all the allowances we offered were sold, and the CCR operated as intended. These early results demonstrate RGGI is on track to reduce carbon emissions by 80-90 million tons through 2020 while helping states fund clean energy investments.”

More Than $2 Billion in Lifetime Energy Bill Savings

The March 5 auction generated $93.96 million in proceeds that will now be available to RGGI states for investment in a variety of beneficial energy initiatives, including energy efficiency, renewable energy, direct bill assistance, and greenhouse gas abatement programs, RGGI highlights. Cumulatively, RGGI auctions have yielded more than $1.6 billion for reinvestment.

Added Collin O'Mara, RGGI board vice-chair and secretary of the Delaware Department of Natural Resources and Environmental Control:

“Our first auction under the new cap demonstrates how market-based programs cost-effectively reduce carbon pollution while driving investments in a clean energy economy. Our recently released Regional Investment of RGGI CO2 Allowance Proceeds, 2012, estimates that RGGI proceed investments will return more than $2 billion in lifetime energy bill savings to more than 3 million participating households and more than 12,000 businesses in our region.”

Image credit Baltimore Building & Construction Trades Council

*Graphs credit RGGI