September 3 marked the 25th auction of carbon dioxide emission allowances by the Regional Greenhouse Gas Initiative, a cap-and-trade program covering nine states primarily in the northeastern United States. Allowance prices for this auction were $US4.88 ($A5.43), marking the third consecutive auction that prices were at or above $US4 per short tonne of CO2.
RGGI held its first auction in 2008 and by mid-2010, allowances were selling at or near the price floor, or minimum allowable bid, where they remained for more than two years. This was caused in part by an unanticipated decline in natural gas prices, starting as far back as 2007, that had led to a decrease in CO2 emissions as natural gas displaced coal as a generation fuel in the Northeast.
Emissions were well below the targets originally set by RGGI, which proved to be non-binding. In January 2013, RGGI announced its plan to reduce its cap on CO2 emissions by 45 per cent, starting in 2014. Since the announcement of the cap reduction, prices have increased above the price floor, and are now trading above $US4 per short tonne (st).
Source: US Energy Information Administration, based on Regional Greenhouse Gas Initiative
The $US4/st threshold is significant because in February 2013, RGGI introduced the Cost Containment Reserve. The CCR holds allowances in reserve that are released only when the allowance price hits a predetermined level. The CCR trigger price is currently $US4 and will rise annually in $US2 increments through 2017 (when it reaches $US10), then increase by 2.5 per cent each year thereafter. A 5 million allowance withdrawal limit was set for 2014, and a 10 million allowance withdrawal limit was set for all subsequent years.
In auction 23 (March 2014), 23.5 million allowances were sold, including 18.5 million in initial bids and all 5 million CCR allowances reserved in 2014. As designed, the CCR stabilised the price at $US4 for first-quarter 2014. However, in auction 24 (June 2014), the clearing price was $US5.02, and a total of 18 million allowances were sold. Because the 2014 allowances in the CCR had all been allocated in the previous auction, the price increased above the $US4 CCR price. Similarly, the most recent auction sold 18 million allowances at the clearing price of $US4.88, again in excess of the $US4 CCR trigger.
The money raised through the auctions is distributed among the participating RGGI states and spent on state programs that are primarily energy related.
Since the inception of RGGI (through 2012), current member states have raised a total of $US985 million ($A1.096 billion) in auction proceeds. Of that amount, $US665 million (68 per cent) has been invested toward state programs, $US93 million (9 per cent) transferred to state general funds, and $US184 million (19 per cent) was committed to programs in 2013 and beyond. Those amounts and the figure below do not include proceeds associated with New Jersey, which terminated its participation with RGGI in 2011.
Source: RGGI, Regional Investment of RGGI CO2 Allowance Proceeds, 2012 (NOTE: Figure does not include proceeds from New Jersey, which terminated its RGGI participation in 2011.)
Originally published by the US Energy Information Administration. Reproduced with permission.