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?