Carbon Dioxide Emissions Allowance Prices Fall Sharply in RGGI Auction

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The price for carbon dioxide emissions allowances fell sharply last week in an auction among states participating in the Regional Greenhouse Gas Initiative (RGGI). Prices for a 2009 vintage emission allowance fell to $2.19, a decline of more than $1 per allowance, or 32%, from the $3.23 clearing price at the previous auction, which was conducted in June 2009. Prices for 2009 allowances auctioned last week were down 38% from their peak of $3.51 each in March 2009.

Click on the image at right to view a chart of the 2009 vintage emission allowance prices.

Prices for the 2012 vintage allowances also fell in last week's auction, though less steeply than 2009 vintage allowances. The clearing price for 2012 vintage allowances fell to $1.86, down 9% from the $2.06 those allowances were sold for in June 2009, and down 39% from their March 2009 clearing price of $3.05. For more on RGGI and its auctions, see July 7, 2009, article - Carbon Dioxide Allowance Trading Taking Shape in Northeastern U.S..

RGGI is a 10-state regional compact of northeastern and mid-Atlantic states whose greenhouse gas-reduction mandate applies to all fossil-fueled power plants larger than 25 megawatts (MW) that are located in the 10 RGGI states. RGGI's mandate covers an estimated 98% of all power plants in that region.

The price declines were not completely unexpected, though Jonathan Schrag, executive director of RGGI Incorporated, would not speculate why the clearing prices were so much lower than recent auctions. "The demand for allowances was about 2.5 times what the supply was, about equal to what it has been for the previous two auctions. Bidders bid lower--I don't know why. But the system is working," he told Industrial Info.

In a news release, RGGI Incorporated, the non-profit group set up to provide technical and administrative services to the states in RGGI, said last week's auction was "a success." The five auctions RGGI Incorporated has conducted since September 2008 have drawn a total of more than 100 bidders, including electric utilities, manufacturers, financial institutions, environmental groups, and individuals.

Those five auctions have raised more than $430 million, according to RGGI Incorporated. Those funds are apportioned to the states in RGGI for investment in energy efficiency, renewable energy, technology development, and other measures that return the value of the proceeds to consumers. The next auction is scheduled to take place in early December.

"The states participating in RGGI are investing auction proceeds in energy efficiency programs as the most effective way to manage energy demand while making the transition to a clean-energy economy," said Mark Mauriello, Commissioner of the New Jersey Department of Environmental Protection and Director of the RGGI Incorporated Board of Directors.

In a news release on the auction, RGGI Incorporated said that energy efficiency programs generate significant utility-bill savings for consumers. A report by the New York State Energy Research and Development Authority (NYSERDA) forecasts that RGGI-funded energy-efficiency measures will save New York's consumers more than $1 billion during the lifetime of the installed measures. Similarly, data filed by Massachusetts utilities and made available by the Massachusetts Department of Energy Resources shows that a 2007 investment of $120 million in energy efficiency will yield an estimated $673 million in cumulative bill savings for participating customers.

Each fossil-fueled power plant larger than 25 MW operating in a RGGI state must possess carbon dioxide emissions allowances equal to its total CO2 emission levels over a three-year period. A power plant in New York emitting 100,000 tons of carbon dioxide annually must possess a total of 300,000 allowances to cover three years (2009-11) of its operations. Emissions and allowances will be trued-up every third year.

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