America’s first functioning cap-and-trade program recently marked its sixth anniversary with perhaps its strongest auctions yet – but exponentially greater success may be just around the corner.
The Regional Greenhouse Gas Initiative (RGGI) held its 19th auction of CO2 allowances late last week, selling nearly 38 million allowances at a clearing price of $2.80 and generating $105.9 million in revenue. 69% of permits were purchased by electricity generators and their corporate affiliates.
That revenue will be earmarked for investment in clean energy technologies like energy efficiency, renewables, and climate change adaptation across RGGI’s nine Northeast US member states.
Auction Results Rising Over Time
Selling 100% of available allowances and generating millions for clean tech are both significant accomplishments, but RGGI’s latest auction looks even better with a little context.
Both the amount and prices of allowance sales rose from RGGI’s 18th auction in December 2012, which saw 19.7 million allowances (53% of available allowances) sold at a clearing price of $1.93 and generated $38.1 million in revenue.
That auction represented a decline from the 17th auction in September 2012, which sold 24.5 million allowances (65% of available allowances) at a clearing price of $1.93 and generated $47.4 million in revenue.
Taking another step back, RGGI’s impact becomes even clearer. A 2012 report found states have invested $617 million of auction revenue from the first 16 quarterly auctions into clean energy technology. In addition, a 2011 report found RGGI state carbon allowance investments kept more than $765 million in local economies by reducing fossil fuel demand. “RGGI has provided a roadmap to a clean energy future,” said Collin O’Mara, Delaware’s Secretary of Natural Resources and Environmental Control.
Tighter Cap, Greater Results
While RGGI’s auction system has worked well, results have been uneven over time, especially as much of the regional generation fleet has transitioned to natural gas. In addition, prices have remained relatively low compared to Europe and California.
Since overall emissions have fallen, power plants are generally not too far above RGGI’s emissions cap, meaning allowance prices (and thus action from utilities to reduce emissions as a result of the cap) have stayed relatively static. However, all that may be about to change – for the better.
Just over a month ago, the RGGI states decided to reduce the 2014 CO2 budget (the “cap” in cap-and-trade) from 165 million to 91 million tons and retire unsold 2012 and 2013 allowances.
This 45% cut is expected to boost allowance prices to $4 per ton in 2013 and up to $10 per ton in 2020, creating billions of new revenue every year. By comparison, RGGI allowance auction clearing prices have never risen higher than $3.51.
All This Without Utility Bill Price Spikes
Critics may be quick to decry the decision as harmful for utility customers, but the new cap reflects actual emissions levels that are currently 40% below RGGI’s initial forecasts. And, utility bills haven’t suffered from reduced emissions – electricity prices have decreased 10% across the region since RGGI’s launch.
The cap will continue to decline over time, dropping an additional 2.5 percent each year from 2015 to 2020, and will flexibly account for allowances already held by market participants, reducing the potential for price spikes.
In fact, an analysis by ICF International forecasts the average electricity bill for residents of RGGI member states will increase less than 1% by 2020, while emissions will decrease 15% from current levels and auctions will generate $2.2 billion in new revenue for clean tech investments.
Comparatively Speaking, The Choice Seems Clear
As RGGI continues to mature, its economic and environmental benefits continue to grow. Member states have enjoyed one of the strongest clean energy economies in the country and have saved hundreds of millions in energy costs.
By comparison, New Jersey, the one member state that has withdrawn from the program, may lose $680 million in revenue and recently slipped in SEIA’s national solar ranking. The benefits of RGGI membership seem pretty clear, and national policymakers should keep the system’s success in mind as a example of how emissions can fall while economies benefit.
Note: the seventh paragraph was updated to accurately reflect state investments in clean energy technologies.