Cap And Trade

Published on December 15th, 2014 | by Silvio Marcacci

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Carbon Markets Link In $500 Million Clean Energy Investment

December 15th, 2014 by  

North America’s carbon markets have raised over $500 million for clean energy projects and successfully completed the first linked international auction in the past month, highlighting the potential for expansion and international system linkages to fight climate change.

California’s cap-and-trade market held its first joint auction with Quebec’s system, raising $407 million and demonstrating carbon pricing works across international borders, while the Northeast United States’ Regional Greenhouse Gas Initiative (RGGI) generated $94 million in its 26th auction.

Three trends are apparent: First, these cap-and-trade systems continue gaining strength in carbon pricing and demand. Second, North American carbon markets could engage new states and provinces in 2015. Third, these carbon markets show pricing pollution and dedicating revenue to clean energy creates economic growth – a key argument for the U.S. Environmental Protection Agency’s “Clean Power Plan.”

Coal_power_plant_Datteln_2_Crop1

California Keeps Crushing It On Carbon Market Success

The first California-Quebec joint auction, held November 25th, capped off an incredible year of clean energy progress for the Golden State. All 23.1 million available carbon allowances for 2014 sold out at $12.10 per ton, and the auction also sold out of all available 2017 future allowances for $11.86 per ton.

Auction demand and prices show the system gaining strength faster than a bodybuilder at Venice Beach. Current and future clearing prices for allowances increased from California’s previous auction ($11.50/ton for 2014, $11.34/ton for 2017), and cumulative proceeds from all 2014 auctions now stands at $1.2 billion.

Add 2014’s total to the $1.4 billion generated in 2013 and nearly $3 billion has been invested in clean energy, emissions reductions, consumer utility bill relief, and government operations in two years – just by pricing pollution! And cleaning the air is also greening wallets: California is the epicenter of America’s clean tech economy and home to 430,000 green jobs.

California cap and trade board game

November’s auction also demonstrated international carbon markets can successfully link to cut emissions and fund clean energy over a wider area. California and Quebec officially linked systems on January 1, 2014 and Quebec held four successful auctions on its own, but the first joint auction was previously postponed due to technical difficulties.

Demonstrating international market linkages is important precedent, considering the World Bank reports 39 national and 23 regional carbon markets are either in place or scheduled to launch soon, and China has pledged to develop its national carbon market in coordination with California.

RGGI Flexibility Bodes Well For EPA Emissions Cuts

But let’s not forget RGGI. The system’s final 2014 auction set a new record high for carbon prices within its borders by selling out all 18.2 million available allowances at $5.21/ton, generating $94 million for clean energy, energy efficiency, and pollution reduction. RGGI has now cumulatively raised $1.9 billion, outpacing initial projections of $2 billion by 2020, while the regional economy has grown 7%.

Even though it generated a quarter of the revenue raised by California and Quebec, RGGI’s most recent auction is arguably more significant for a different reason – rising prices in RGGI show how carbon markets can adjust over time to changing economic or energy trends while remaining relevant.

RGGI territory

“After 26 successful auctions, RGGI states have demonstrated it is possible to effectively achieve pollution reduction goals while maintaining grid reliability and affordability for consumers,” said Commissioner Kelly Speakes-Backman of the Maryland Public Service Commission.

Carbon allowances have sold for around $2/ton throughout most of RGGI’s six-year auction history. Emissions fell faster than expected (40% since 2005) due to America’s economic slowdown (thus less power demand), increased energy efficiency, and more renewable and natural gas generation. This all added up to less demand and lower prices for carbon allocations.

But in 2013, RGGI reduced the 2014 carbon budget (the “cap” in cap-and-trade), retired unsold 2012 and 2013 allowances, and increased its emission reduction goal to 50% by 2020. And it’s worked – allowance prices rose to around $3/ton through 2013, and have been between $4-$5/ton through 2014.

Here’s why RGGI’s success is important: EPA’s proposed plan to cut U.S. power plant pollution endorses regional market-based systems as a cost-effective way to achieve a 30% national emissions reduction by 2030. “Our RGGI experience demonstrates cost-effective approaches to implementing EPA’s proposed Clean Power Plan are available and if correctly designed can support state economies,” said Commissioner Rob Klee of the Connecticut Department of Energy and Environmental Protection.

Will North American Carbon Markets Spread Regionally?

Naturally, generating billions for economic growth while cutting pollution has proved attractive to other North American governments. Quebec has discussed integrating RGGI states with its system and linking to other Canadian provinces to create an Eastern regional market while California is already working with Oregon, Washington State, and British Columbia on a Western regional climate plan.

Pulling other states into existing carbon markets sounds far off, but several states could realistically move toward integration in 2015. A Washington State cap-and-trade proposal should occur this year, while studies have shown an Oregon carbon tax would raise billions without harming the state’s economy, and Governor-elect Tom Wolf has promised Pennsylvania will join RGGI – nearly doubling the system’s footprint. Climate hawks are also pushing for New Jersey to rejoin RGGI after Governor Chris Christie withdrew the state in 2011.

In a recent editorial, the heads of all four West Coast governments wrote their joint approach “shows it is possible to take serious action on climate and simultaneously grow an economy.” Climate analysts have also predicted EPA’s Clean Power Plan means RGGI membership is now in the future for Pennsylvania and New Jersey.

Bottom line, carbon markets work – by one account they cut emissions 17 times cheaper than subsidies alone. And with every dollar raised by pricing emissions, we get one step closer to our clean energy future.


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About the Author

Silvio is Principal at Marcacci Communications, a full-service clean energy and climate policy public relations company based in Oakland, CA.



  • Hazel

    The amazing thing to me is that we’ve achieved so much reduction in emissions with just $5-12/ton emissions prices. Sure, the economic slowdown helped, and this doesn’t include transportation. But everyone predicted $30/ton would be necessary to reach this kind of reduction, and falling costs of efficiency and renewables have put that notion to bed.

    As usual, the costs of emissions reduction have been far lower than anyone had predicted, even the optimists. (See also: sulfur, soot, water emissions, CFC elimination.)

  • Will E

    when worldwide UN meetings dont work regional initiatives can.

  • JamesWimberley

    The RGGI map shows New Jersey as in. It won’t be easy to overcome Christie’s opposition, especially as his Presidential ambitions require obeisance to Koch money.

    • Offgridman

      Christie might block NJ from becoming a part of the RGGI, but his presidential ambitions are all in his head. He has aligned himself to closely with the far right/tea party aspect of the Republican party to ever get elected, or even achieve a nomination. Along with all of the corruption scandals of the past couple of years that he has been associated with he has blown his chance by thinking to highly of himself.
      The far right aspect of the American public may have had its influence in the most recent elections, but it is doubtful that they can overcome the middle ground and left leaning citizens that turn out in the presidential elections.

      • Bob_Wallace

        The corporate wing of the Republican party is back in control. They will be much more comfortable with Jeb or Mitt. Christie just doesn’t look like someone who would be welcome in a board room.

        Pretty likely we’ll get a well buttoned down candidate from them this time around. Look for the religious wackos and loud mouth flakes to be quickly shoved aside.

        • Offgridman

          Had thought to include in my first response that the fat slob just doesn’t have the tele-presence to cut it as a presidential candidate. You expressed it much more nicely, so its a good thing that I did hold off.
          😀

      • Larry

        Chris Christie is maintaining a longstanding tradition of corruption in N.J. state politics. I wonder if his family background includes ties to the Sopranos

  • Mike333

    Perspective: Exxon alone should be spending 20 Billion to diversify into Clean Energy.

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