Wednesday, December 8, 2010

RGGI Carbon Auctions Not Meeting Expectations

The Northeast and Mid-Atlantic states participating in the Regional Greenhouse Gas Initiative (RGGI) has released the results of their 10th auction of carbon dioxide (CO2) allowances, held Wednesday, Dec. 1. According to a press release issued by the NYS Department of Environmental Conservation (DEC): “As with previous auctions, states are reinvesting the proceeds in a variety of strategic energy programs to save consumers money, benefit the environment and build the clean-energy economies of the RGGI states.”

The Regional Greenhouse Gas Initiative (RGGI) is the first government-mandated carbon dioxide control program in the United States. It requires power plant emissions reductions in New York and nine other Northeastern and Mid-Atlantic States. Over a period of years, the 10 states are hoping to reduce their power plant carbon emissions through a “cap-and-trade” program. There are indications however, that the carbon cap may be too high to have any impact. Additionally, environmentalists hopes to retire significant numbers of carbon credits have also proved limited.
Each year, every power plant in the region must purchase one “carbon allowance” for each ton of carbon dioxide they emit. The RGGI plan was expected to reduce CO2 emissions from large power plants in it’s ten-member states to 10% below the 2005 levels by 2019. But in the RGGI’s first two years alone, CO2 emissions have dropped 33% below 2005-levels. Most of that decline (31.2%) according to a NYSERDA white paper [pdf], is due to power companies switching fuel from petroleum and coal to cheaper natural gas.

In November an RGGI consultant (IGF International) reported that while emissions in the RGGI member states are expected to grow steadily into the near future, they’ll be well below the 2019 reduction target through 2030. They said that the data suggests that the CO2 cap should be lowered to require as much as a 25% reduction in emissions by 2019 for the RGGI to have any impact at all.

Hopes of the environmental community to permanently remove carbon credits through individual purchasing programs appear to be without merit as well. In December 2008, then US Representative Kirsten Gillibrand became the first American to permanently retire carbon dioxide pollution allowances from a government-mandated carbon dioxide reduction program. The Adirondack Council has, from the start of the RGGI auctions, offered the public the opportunity to retire allowances in groups of three tons each for $25.

However, a new report by the RGGI shows that electric generators and their corporate affiliates have won 85 percent of all CO2 allowances sold in auctions 1-10, and following post-auction trading now hold 95 percent of all allowances. The report is available online.

The fact that environmentalist have not made a dent in buying-up the allowed CO2 emissions, is seen as a good thing by Peter Iwanowicz, Acting Commissioner of DEC. “The auctions show that one of the major concerns of power generators – that they would not get the pollution allowances they needed – has not come to pass,” he told the press, “RGGI is setting an example for the nation.”

The RGGI auctions are helping to fund some smart energy programs in New York State and the 9 other Northeast and Mid-Atlantic states participating in RGGI (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, New York, Rhode Island and Vermont).

More than 80 percent of the auction proceeds are being invested in strategic energy programs DEC officials said this week. For example, New York State is investing a portion of its proceeds to provide energy efficiency services to residential consumers through NYSERDA’s “EmPower New York” program which funds energy education, energy audits and efficiency upgrades.

New York’s share of the total proceeds from the December auction is approximately $16.9 million. Since September 2008, proceeds from the 10 RGGI auctions have totaled approximately $777 million. New York’s share is approximately $282 million.

About the Regional Greenhouse Gas Initiative

The offering of current control period CO2 allowances (2009-11) in this year’s auction yielded a total of $46 million from the sale of 24.8 million allowances. Approximately 57 percent of allowances offered were sold at a price of $1.86 per allowance the DEC release said.

States also offered a smaller number of allowances for a future control period (2012-2014). This offer produced $2.2 million from the sale of 1.8 million allowances. Approximately 53 percent of these allowances were sold at a price of $1.86 per allowance.

A CO2 allowance represents a limited authorization to emit one short ton of CO2, as issued by a respective participating state. A regulated power plant must hold CO2 allowances equal to its emissions to demonstrate compliance at the end of each three-year control period. The first control period for fossil fuel-fired electric generators under each state’s CO2 Budget Trading Program took effect on January 1, 2009 and extends through December 31, 2011.

Allowances for the first (2009-2011) control period may be used to meet current compliance obligations, or may be banked for use in future control periods. CO2 allowances for the second (2012-2014) control period can only be used to meet compliance obligations beginning in 2012. CO2 allowances issued by any participating state are usable across all state programs, so that the ten individual state CO2 Budget Trading Programs, in aggregate, form one regional compliance market for CO2 emissions.

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