The Regional Greenhouse Gas Initiative (“RGGI”) raised a record $124.4 million in its June 5, 2013 carbon emissions auction, with the clearing price of emissions allowances reaching a three-year high of $3.21 per ton of carbon dioxide (“CO2”). The increase reflects expectations that the nine-state, cap-and-trade regime for power plant CO2 emissions will impose more stringent emissions limitations in 2014, as proposed earlier this year.
RGGI is the first market-based regulatory program in the United States aimed at reducing greenhouse gas emissions from power plants, originally established in 2005 by a Memorandum of Understanding between seven states in the Northeast and Mid-Atlantic regions. RGGI held its first carbon auction in September 2008, with emissions allowances selling for $3.07 per ton. Between 2010 and 2012, however, the combination of relatively modest emissions caps, reduced electricity demand due to the economic recession, and an increase in lower-carbon power generation spurred by low natural gas prices depressed the price of RGGI emissions allowances and raised questions about the future of the program.
In response to those trends, in February 2013 RGGI concluded a two-year program review with a series of proposed changes to the trading program, including a 45 percent reduction in the regional CO2 cap from 165 million tons in 2013 to 91 million tons in 2013. RGGI also released an Updated Model Rule implementing those proposed changes, which must be implemented by each RGGI state this year. After 2014, the RGGI cap is expected to decrease 2.5 percent each year from 2015 to 2020, requiring additional emissions reductions from regulated entities.
The next RGGI carbon emission allowance auction is schedule for September 4, 2013. For more information on RGGI and state and federal climate regulation, contact Jeffrey Gracer.