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RGGI goes live with world’s largest carbon auctionCould first North American cap-and-trade system defy critics’ expectations?
The Regional Greenhouse Gas Initiative, the first legally binding cap-and-trade system in the U.S., kicked off last week with the world’s largest carbon credit auction. Despite dire predictions from some quarters, the auction came off smoothly, reaching a clearing price of $3.07 per ton of carbon dioxide. The media has been writing RGGI’s obituary for weeks now. The New York Times recently explained that RGGI is in danger because the carbon price is too low, “undermining a concept that is being watched carefully by the rest of the country.” The very same article helpfully explained that RGGI might also fail because the carbon price is too high. “If consumer costs rise…it could tarnish the cap-and-trade concept.” Yes: tarnished and undermined. The Wall Street Journal also warned not to expect anything from RGGI, because the carbon price will be too low to stimulate the development of either of the two known technologies that can supplant coal: nuclear power or…coal. “Clean” coal, that is. In the meantime, the rest of us are waiting to see how the program actually comes off. It’s true, the starting carbon price is low, about a tenth of the prices in Europe under Kyoto. Partly this is by design — regulators want to see how the market functions before ratcheting down the cap — but is also due to an oversupply of credits. Still, though, is the price really too low to matter? If any journalist is reading, I have a story idea. The New England states that participated in the first RGGI auction also recently set up a less-heralded but no-less-intriguing auction on the electricity supply side. The program is called the Forward Capacity Market, and one important thing it does is level the playing field between electricity suppliers and energy efficiency programs. $3 per ton is certainly not enough money to wave clean coal into existence, but it could put a helpful thumb on the scales for energy efficiency. Are RGGI and FCM expected to interact? If so, what are the implications for the U.S. as a whole? As we stare down a big recession, might such linkages allow us to pursue economic and environmental objectives at the same time? Perhaps there’s nothing here, but that obit’s got to be getting a little bit boring to write. How about it? Comments
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Not quite the entire hemisphere. Portugal and Ireland (entirely), the UK, Spain and France (partially) have cap and trade in the EU ETS.
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Could someone please explain the positive and negative affects of the price of carbon?
Can anyone "buy" these credits? If so, how would they eventually make money from them?
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how specifically do you guy these. I obvously need some sort of special trading account(options futures?) Any help/suggestions
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Re: the hemisphere. I meant North and South America, which I think actually is an accurate claim. But Canada is a Kyoto signatory, which confuses the matter even further. I've dropped the statement.
Paul: the benefit of placing a price on carbon is that doing so allows the market to find the most efficient ways to reduce carbon emissions. Efficiency is good for the economy and for the environment, as it allows greater carbon reductions to take place for the same price.
The downside is that the price of stuff will go up, at least in the near term. This is better than the alternative of polluting freely, but it's still not something that most people look forward to.
Re: buying credits. For the most part the purpose isn't to make money on them. It's to force utilities and consumers to account for the environmental costs of carbon when they make consumption choices. Of course, there's nothing really wrong with treating them as an investment vehicle, but that's not a topic we can provide help with.
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I'm not sure I follow the gloom-and-doom articles' reasoning. How is it RGGI's problem if the price of carbon is "too high" or "too low"? If a product is worth whatever somebody will pay for it (that's a basic assumption of the capitalist model), whatever price the credits fetch at auction is, by definition, a fair price. It seems to me that what the papers are really griping about is that it could take several years for the cap to decrease and the price to increase enough to give alternative fuels the upper hand. However, it's not like a certain price will flip the switch that changes everybody's energy from coal to solar.
Right now, a lot of companies are asking themselves, "How much would we pay now to be able to (a) advertise that our factory uses clean energy, and (b) stabilize our fuel costs going forward?" Every company will arrive at a different answer, because different things matter to each of them, and because predicting the future is never easy. Putting a price, any price, on carbon will close the price gap between fossil fuels and alternatives, which is sure to affect somebody's decision.
-- A.
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I think the gloom-and-doom articles are mostly reporters reaching for a hook. The truth is, RGGI is an important story, but also a boring one to report. The immediate impact is the legislation is likely to be tiny, and the details are too esoteric for readers to care about. So instead you get these ominous big picture quotes about success of failure.
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Why is it that 'everyone' seems to be talking about 'clean' coal. It's a myth. As far as I can tell it doesn't even really exist. Could it possibly be because the coal industry doesn't want to become obsolete. There is no 'clean' or light impact way to collect it, and there is no way to burn pure carbon without emitting carbon.
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Cap-and-trade may be difficult to understand and even boring for most people, but it is probably the best mechanism to reach grid parity of wind/solar and reduce carbon emissions. Tax incentives for specific technologies help some at the expense of others. This could be part of the reason that we still see high renewable energy system prices. Just as governments define the legal framework of corporations, cap-and-trade is initially set up by government but then the market takes over. Monitoring and capping pollution is a simple way to make technologies that don't pollute very attractive. The analogy of running the tailpipe of a car into the vehicle's cabin comes to mind. How fast would we have zero emission vehicles if we weren't allowed to just vent the exhaust into the atmosphere?
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