RGGI prepares for next allowance auction; all 10 states to participate

RGGI prepares for next allowance auction; all 10 states to participate

October 20, 2008 02:49

By Rebecca Brenia

McCarter & English, Hartford Office


After a robust introductory auction of carbon dioxide emission allowances that raised more than $38 million for participating states, the Regional Greenhouse Gas Initiative (RGGI) has opened the bidding process for a second auction to be held on December 17, 2008.  All ten RGGI states will participate, with auction proceeds to be used by the states for investments in energy efficiency, renewable energy and consumer energy efficiency programs in the manner specified by the applicable state laws.  The auction is open to the public, but potential bidders must apply and be qualified to participate.


The RGGI program is the first market-based mandatory CO2 cap-and-trade program operating in the United States.  The auction format was designed by the Northeast and Mid-Atlantic states in an effort to stabilize and ultimately decrease CO2 emissions from 233 power plants in the region by ten percent before 2018. Each of the regulated power plants, or "compliance entities" in RGGI parlance, are major sources of air emissions covered by Title V of the Clean Air Act and are either major electric utility facilities or large industrial boilers.


Beginning January 1, 2009, regulated power plants in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont will be required to hold allowances equal to their CO2 emissions.  Each allowance grants its holder the right to emit a ton of carbon dioxide.


The December 2008 auction is the final opportunity to purchase allowances before program compliance becomes mandatory.  RGGI plans to hold quarterly auctions for CO2 emissions allowances beginning in January 2009.


RGGI conducted a similar auction on September 25, 2008 and sold the first traunch of emissions allowances, about 12.5 million allowances at the clearing price of $3.07 per allowance.  Although RGGI has not released the identities of the winning bidders, according to a report of the RGGI market monitor, 80% of the purchased allowances were purchased by compliance entities themselves.  The rest of the allowances were purchased by entities that have no compliance obligations, which means they are likely intending to transact the allowances in the market as investment vehicles.


Now that all 10 states will be participating and the compliance period is about to begin, this next auction will be one to watch closely to see whether the clearing price rises and if investor interest in emissions allowances grows or wanes.


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