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Carbon Auctions for Polluters to Start in Northeast Region

The good news is that next week, ten Northeastern and Mid-Atlantic states will begin holding first-in-the-nation auctions of greenhouse gas allowances, an initiative aimed at capping the pollution causing global climate change.

The Regional Greenhouse Gas Initiative, or RGGI, will cap emissions for 233 plants and allow polluting companies to buy allowances at auction or trade for them with companies willing to decrease their emissions and sell their emission allowance.

Unfortunately, because of the politics in setting the overall cap of carbon emissions, the cap on emissions was set at 188 million tons, which is higher than the estimated 172.4 million tons of emissions across the region last year. So allowances will exceed companies' need for emissions, causing the price for allowances to fall and lowering the incentive for companies to reduce their pollution.

Modest Initial Results Expected: On the other hand, the region's lower, below-the-cap carbon emissions are due both to both milder weather, which could change and thereby pressure companies to increase their efficiency, and utilities making the positive move of shifting from higher-carbon fuels to lower-carbon sources like natural gas. Plus, the overall gap will start being lowered by 2.5% a year beginning in 2015 for a 10% reduction by 2018.

A positive feature of the auction system is that revenues from the auctions will be dedicated to promoting energy efficiency in each state. As we noted in a past Dispatch, the RGGI system improves on an existing European "cap and trade" system by auctioning off all allowances, rather than giving incumbents free allowances and a windfall profit. And it much more severely restricts use of "carbon offsets," such as planting trees or other alternatives, other than restricting pollution emissions by other companies through the trading system.

Most analysts expect the initial cuts in carbon emissions from the system to be modest, but creating a working system will allow policymakers to evaluate the results and hopefully further restrict emission allowances in future auction rounds. In the meantime, RGGI is becoming a model for other states and possibly the federal government for restricting carbon emissions and helping to stop global climate change.

 

Resources

Carbon Auctions for Polluters to Start in Northeast Region

Regional Greenhouse Gas Initiative (RGGI)
Pew Center on Global Climate Change, Regional Greenhouse Gas Initiative (RGGI) Timelines, Statutes and other resources
Progressive States Network, The Fight Against Global Warming: Another Way States Can Rein in Greenhouse Gas Emissions
Environment Northeast, RGGI Emissions Trends and Auction Report