RGGI Launches First-In-The-Nation Auction For CO2 Allowances

Sep 25: At a bell-ringing ceremony held at the New York Mercantile Exchange in lower Manhattan, the Regional Greenhouse Gas Initiative (RGGI) marked the opening of the first-in-the-nation auction for carbon dioxide emission allowances [See WIMS 3/21/08]. The ceremony, which was attended by Governor David Paterson of New York and Governor Jon Corzine of New Jersey, served to mark what RGGI says is the "most serious effort yet in the United States to address climate change."

RGGI will reduce carbon dioxide (CO2) emissions through a mandatory, market-based cap-and-trade program. Under RGGI, the ten participating states will stabilize power sector carbon emissions at their capped level, and then reduce the cap by 10 percent at a rate of 2.5 percent each year between 2015 and 2018. As promised in the 2005 RGGI Memorandum of Understanding, all participating states plan to have implementing regulations in place by January 1, 2009.

Jonathan Schrag, Executive Director of RGGI, Inc. said, “Today marks the culmination of more than five years of research, design and development of the nation’s first carbon market. It is fitting that our event took place on the shores of the river that Henry Hudson explored nearly 400 years ago. As with Hudson’s exploration then, these pioneering states are leading the way forward on the new, clean-energy economy that others will surely follow.”

CO2 allowances under RGGI will be distributed primarily via auctions rather than the free allocation methodology used in other emissions markets. By using an auction, participating states are able to provide benefits to consumers. Revenues from the carbon allowance auctions will be invested by the participating states in energy efficiency programs, renewable energy stimulus efforts and other programs to benefit consumers. As a result, RGGI will deliver economic and environmental benefits and improve energy security through reduced use of fossil fuels.

The RGGI auction offered 12,565,387 allowances, including CO2 allowances issued by Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont. Other RGGI participating states (Delaware, New Hampshire, New Jersey, New York)will offer allowances for sale in future auctions as they complete their necessary rulemaking proceedings. A second auction is scheduled for December 2008, with all RGGI participating states expected to offer allowances for sale in the first 2009 auction. The CO2 allowances purchased at this auction can be used by a regulated facility for compliance in any of the RGGI states, even if that state did not offer allowances in this auction.

Future sales of CO2 allowances are planned through a steady offering of allowances in quarterly auctions. States have committed to offer for sale before the end of 2011 all of the allowances they are putting into the auctions for the first three-year compliance period. Regulated power companies must hold enough allowances to match their CO2 emissions for the first compliance period by March 1, 2012. RGGI is serving as a model for other regional greenhouse gas initiatives including the Western Climate Initiative, the Midwestern Regional Greenhouse Gas Reduction Accord, a system being studied in Florida.

Dale Bryk, senior attorney at the Natural Resources Defense Council (NRDC) said, “Today is a bold step forward for our clean energy future and the fight against global warming. The new system is good for consumers, good for the economy and good for our climate. This new energy plan is straight-forward, highly cost-effective and creates a clean energy pathway for the rest of the country to follow. It is the shape of things to come.” Leading companies operating in the region that have backed the new system include Bank of America, Staples, National Grid, Pfizer, PSEG and the association of large energy users called The Energy Consortium.

World Resources Institute (WRI) President Jonathan Lash said, "Today, ten states are taking a major step forward in the fight against global warming as they begin operations of the Regional Greenhouse Gas Initiative (RGGI), the country’s first mandatory GHG emissions market. These Northeast and Mid-Atlantic states have been pioneers at a time when federal action has been egregiously lacking. Their accomplishments have proven that emissions markets are effective and politically possible. . . WRI is proud to have participated in the design of all three agreements, and congratulates the governors, state legislators, and stakeholders in the RGGI states on their outstanding accomplishment.”

Access a release from RGGI (click here). Access the RGGI website for extensive information (click here). Access the Western Climate Initiative (click here). Access the Midwestern Regional Greenhouse Gas Reduction Accord (click here). Access the Florida Climate Change website (click here). Access a release from NRDC (click here). Access a release from WRI (click here). [*Climate]