Third Regional Cap-And-Trade Auction Set

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N.Y. Governor Should Stand Strong on Auctions, Science Group Says

CAMBRIDGE (March 17, 2009) — The Regional Greenhouse Gas Initiative (RGGI), a partnership among 10 Northeastern states to reduce global warming emissions from power plants, tomorrow will conduct its third auction of carbon-dioxide-emission permits under its cap-and-trade system. The auction's results should be available by Friday.

According to the Union of Concerned Scientists (UCS), the auction will demonstrate that well-designed cap-and-trade systems are capable of adjusting to economic fluctuations. Member states in the partnership, the group said, should rebuff any industry requests for free allowances.

"I wouldn't be surprised to see a lower clearing price for allowances than we've had in previous auctions," said Ned Raynolds, Northeast climate policy coordinator at UCS. "Economic activity has slowed and people are using less electricity, so emissions are down. That's why frequent auctions are important. They allow businesses to respond to what's happening with the economy. A well-designed cap-and-trade system can work in any economic climate."

RGGI covers electric power plants located in all six New England states, Delaware, Maryland, New Jersey and New York. The RGGI program caps the total emissions from electric power plants in the 10 states at the same level through 2014 and then cuts total emissions 10 percent by 2019. The first quarterly auction for these allowances, held in September, yielded a price of $3.07 per allowance, raising $38.5 million for participating states. The second auction, held in December, resulted in an allowance price $3.38, raising $106.5 million.

The lowest price at which allowances can be sold is $1.86 each. Such a "reserve price" is intended to ensure that the system maintains a minimum, long-term incentive for electricity users to become more energy efficient and for utilities to provide more electricity from clean, renewable energy.

According to a March 15 story in the New York Times, New York Gov. David Patterson (D) is considering amending RGGI-related state regulations to increase the percentage of allowances given to industry for free. Currently, states auction the vast majority of allowances, but individual states give away 1.3 to 33 percent of their allowances (pdf). New York only gives away 2.3 percent to polluters. Raynolds said the governor should leave current state regulations alone.

"New York pushed other states to auction nearly all of their allowances, and that system is working," he said. "The third auction should provide more evidence to Governor Patterson that there's no need for more giveaways to polluters."

States plan to use auction revenue for programs that help homeowners and businesses save money by making their buildings more energy efficient and for initiatives that encourage development of more renewable energy sources, such as wind and solar. Nearly every RGGI state is close to finalizing specific plans for distributing the funds to help achieve energy cost savings and meet energy and climate policy goals.

Despite the drop in regional emissions, UCS has cautioned that interstate electricity sales could further undermine RGGI's effectiveness unless the 10 participating states ensure that utilities do not increase their imports of coal-fired electricity generated outside the RGGI region. UCS released a report last December on this potential problem that offers recommendations for states to address it.

Source: UCS