The Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade regime for carbon emissions from electric utilities in ten Northeastern states, got underway this week, with the big news that this was the first time pollution permits had ever been auctioned off in a cap system. (Normally they are simply handed out by governments to companies regulated by the cap.) Barack Obama has touted the auction approach to regulating greenhouse gases, and the EU is considering moving to an auction to fix some of the problems with its trading regime, so this was a closely watched event.
As it turns out, there were no big glitches. Potomac Economics issued a report finding "no evidence of collusion or manipulation by the bidders." Nor did environmental groups buy up lots of permits so as to raise the price of carbon even higher, as some energy companies had feared might happen (the Adirondack Council bought permits for 1,000 tons of carbon, but other activists decided not to participate). Earlier, there had been a debate over what the states should do with the revenue raised by auctioning off permits—whether to rebate it to consumers or invest in efficiency upgrades—and, in the end, they decided on the latter, in part because the price increase to consumers will be so minor (the average New Yorker will see just a 78-cent increase on his monthly utility bill).
Ultimately, the price of carbon under RGGI is still much too low to make a huge dent in emissions levels right now—the clearing price was around $3 per allowance to emit a ton of carbon, far lower than the $37/ton price in the EU. To put this in perspective, as Keith Johnson of the Wall Street Journal points out, prices would have to be around $25/ton to make carbon sequestration economical, and $45/ton to persuade coal-burning utilities to switch to nuclear. Some regional environmental groups are already considering advocating for a tighter cap—Ned Raynolds of the Union of Concerned Scientists suggests that a price of $7 to $10 would be a better start.
For now, then, the main point may have been to show onlookers like the EU and Congress that a carbon auction can go smoothly. Skeptics won over included National Grid, the largest natural-gas distributor in the Northeast, whose spokesperson, David Graves, says the company now supports the auction idea (the utility had decided to wait until the second RGGI auction held in December). "There’s no reason this wouldn’t work on a national level," agrees David Patton, president of Potomac Economics. "The systems are scalable, so increased participation should not be a problem."