• First CO2 Cap-And-Trade Auction Opens in U.S
  • October 19, 2008
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • On Thursday, a coalition of 10 northeastern states conducted the nation’s first cap-and-trade greenhouse gas emissions auction. The Regional Greenhouse Gas Initiative (“RGGI”) offered 12.5 million allowances to emit carbon dioxide (“CO2”) in the first of a series of quarterly online auctions (see August 1 edition of the WER). A CO2 allowance permits the emission of one ton of CO2. Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont participated in this first auction.

    Under the mandatory program, the total CO2 emissions allowed from the states’ 233 electricity plants will be capped at 188 million tons annually through 2014 and then reduced by 10 percent by 2019. Each electric generation plant must obtain an allowance for each ton of CO2 it emits.

    Demand for carbon permits is expected to be lower in the first few years of the RGGI auctions because the CO2 emissions cap of 188 million tons of CO2 a year is about nine percent more than 2007 emissions in the region. Creating a surplus at the outset should avoid price or supply shocks that could undermine support for emissions markets. The number of permits will drop 2.5 percent a year from 2015 through 2018, making it more expensive over time to emit CO2. Consequently, auction prices should rise over time, giving permit holders an incentive to reduce emissions, and sell any unused permits in the market.

    The RGGI states hired an independent market monitor, Potomac Economics, to oversee auctions and subsequent market activity to determine whether the auction results represented a competitive outcome. Prices have fluctuated from $4.50 to $7 for a ton of emissions, making the annual supply worth about $1.1 billion using the average price. The RGGI states will use the proceeds for energy-saving and renewable energy programs in each state.

    The next auction will take place on December 17, 2008 and is expected to include Delaware, New Hampshire, New Jersey and New York. The CO2 emissions cap takes effect January 1, 2009. More information about the RGGI program is available at: http://www.rggi.org/home.