Curbing GHGs with Cap–and–Trade —How It’s Working
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The RGGI held its first CO2 allowance auction on September 25, 2008 and will hold its 26th auction on December 3, 2014. Along the way, the RGGI has evolved and in 2013, made changes to its Model Rule to further reduce CO2 emissions and help to ensure the long-term success of the program for the nine participating states.
As noted yesterday, one important change to the RGGI’s Model was the reduction of the regional CO2 cap by 45% for 2014, with continued reductions of 2.5% each year from 2015 through 2020. In addition, adjustments were made that account for surplus or “old” CO2 allowances held by participants prior to 2014. From 2014 through 2020, compliance with the cap will be achieved using both “new” auctioned allowances and “old” allowances.
According to the Annual Report on the Market for RGGI CO2 Allowances: 2013, the announcement of the updated Model in February 2013 had an immediate effect on demand for allowances and may be expected to keep prices up as well. “One hundred percent of the 153 million CO2 allowances offered for sale in auctions during 2013 were sold, up from 59 percent in 2012. Given the new emissions cap, firms anticipate that allowance prices will remain well above the auction reserve price (currently $2.00) over the foreseeable future.”
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Also noted was the impact of increased uncertainty about allowance pricing on the secondary market. According to the report, “…the volume of futures trading totaled 76 million CO2 allowances in 2013, up from just two million in 2012. Trading increased throughout 2013 and was highest in the fourth quarter.”
Overall, the RGGI says analysis of all the program changes indicate the following projected impacts:
- Reducing 2020 power sector CO2 pollution more than 45% below 2005 levels,
- Preserving previous CO2 emissions reductions and driving approximately 80 to 90 million tons of cumulative emission reductions by 2020 (compared to the original program Model),
- A modest increase in allowance prices, with allowances priced at approximately $4 ($2010) per allowance in 2014 and rising to approximately $10 ($2010) per allowance in 2020.
- Minimal net impact on consumers’ electric bills (with average electricity bills for residential/commercial/industrial customers projected to increase by less than 1 percent),
- Generation of an additional $2.2 billion ($2010) for reinvestment.
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Looking back, the RGGI also claims to have already achieved substantial benefits to consumers through investments in projects that improve energy efficiency, reduce energy costs and develop local sources of clean and renewable energy. According to the report Regional Investment of RGGI CO2 Allowance Proceeds, 2012, from 2009 through 2012, more than $700 million in auction proceeds were invested by the RGGI, with 65% of that total going to energy efficiency projects that are expected to return more than $1.8 billion in lifetime energy bill savings.
The remaining 35 percent of funds was invested as follows:
- 17% – Direct bill assistance of more than $122 million to more than 2 million households.
- 6% – Clean and renewable energy expected to return more than $73 million in lifetime energy bill savings.
- 6% – Greenhouse gas (GHG) abatement expected to avoid 260,000 short tons of CO2 emissions.
- 5% – Administration
- 1% – RGGI, Inc.
Cumulatively, the report notes the investments have impacted 3.2 million households, 12,000 businesses and included training for 3,600 workers and $240 million saved on energy bills (with an anticipated lifetime savings of $2 billion). From an energy perspective, the program claims to-date savings of 928,000 (8.5 million lifetime) megawatt hours and 2.5 million British thermal units (BTUs) (27 million lifetime) resulting in a total of 792,000 short tons (8 million lifetime)of CO2 emissions avoided to date, equivalent to 149,000 cars taken off the road (1.4 million lifetime).
More information about the RGGI and upcoming CO2 allowance auctions is available at http://www.rggi.org/.