Regional Greenhouse Gas Initiative sets carbon price at $3.07/ton

The first ever auction of carbon permits in the United States has reportedly exceeded all expectations. The Regional Greenhouse Gas Initiative (RGGI) held the first of several planned auctions for carbon permits last week and the demand was so strong, organizers believe it can be a model for a broader-based national program.

RGGI (pronounced ‘reggie’) is a regional agreement between ten northeastern states to manage and regulate greenhouse gas emissions with a system that requires fossil-burning utilities to buy permits for the carbon they release into the atmosphere.

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Healthy demand for carbon permits: A sign of things to come?

The RGGI auction brought out 59 bidders, surpassing expectations of around 20 interested parties. Although demand for the allowances was strong, with a total of 51,761,000 allowances bid for – four times the available supply – the permits sold for less than what some expected. One study predicted a higher price would be put on RGGI emissions, but most estimates did not anticipate the severity of the current financial crisis.

The permits sold for $3.07 a ton, raising nearly $39 million for the state coffers of the six participating states.

Although some might question how effectively the $3.07/ton pricepoint will reduce carbon emissions, what is most promising about the first auction is that it went off without any real problems. The regional agreement will be watched closely by federal regulators who may be looking to this or other cap-and-trade models as potential prototypes for a national program some time in the near future.

Ned Raynolds of the Union of Concerned Scientists said, “This auction was a resounding success and provides evidence to state and federal leaders that auctioning is the way to go.”

While there are ten signatories to RGGI, capping GHGs has still only been approved by the legislatures in six of them – and those are the states that will receive the revenue from the auction. Money raised will go to funding statewide energy efficiency programs, what most agree is the low-hanging fruit in reducing our energy consumption and lowering carbon emissions.

Under the RGGI process, the carbon caps will be reduced incrementally for a total reduction of 10 percent by 2018. Emissions requirements will take effect Jan. 1, 2009.

Image credit: SnapsterMax via flickr under a Creative Commons License