The Regional Greenhouse Gas Initiative (RGGI) announced that all of the carbon dioxide (CO2) emissions offered in its first auction on September 25, 2008 were sold at a clearing price of $3.07 per allowance.
The price was lower than the $4.50 to $4.00 per ton that contracts on the permits had been fetching in recent weeks on futures markets, according to Reuters.
It is also lower than carbon prices in the European Union, where they were trading for about US$34 dollars per tonne (1.1 ton) on Monday.
Prices were kept low, due in part to the high cap level set by the RGGI. The cap of 188 million tons per year was above pollution levels from last year, so only companies that are increasing emissions in the short term have high motivation to purchase permits.
Nonetheless, RGGI reported that 59 participants from the energy, financial and environmental sectors took part in the first-in-the-nation auction, indicating a strong start in the first of many CO2 allowance auctions.
The demand for the allowances appeared to have been strong with a total quantity of 51,761,000 allowances demanded which was four times available supply of 12,565,387 allowances for this first auction.
The $38.5 million in proceeds produced from the auction will be distributed to Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont, the six RGGI states that offered allowances for sale during the first auction.
The states are investing those funds in energy efficiency and renewable energy technologies, and programs to benefit energy consumers.
"The 10 RGGI states have demonstrated great leadership in coming together to offer this first carbon cap-and-trade system, and the smooth completion of the initial auction is proof that the RGGI is leading the nation in the battle against climate change," said Pete Grannis, Commissioner of the New York State Department of Environmental Conservation and Chair of the Regional Greenhouse Gas Initiative, Inc.
The RGGI auction was administered by World Energy Solutions, Inc (TSX: XWE), which operates online exchanges for energy and green commodities.
The RGGI auction was overseen by Potomac Economics, a leader in the field of monitoring and competitive assessment of wholesale electricity markets in the U.S. Potomac Economics noted in its report "the liquidity contributed to generating a clearing price that is consistent with the underlying supply and demand fundamentals governing the CO2 allowance market. It is also encouraging that compliance entities or their affiliates, which should value the allowances most highly, purchased most of the allowances in the auction."
Any CO2 allowances purchased at the first auction can be used by a regulated facility for compliance in any of the RGGI states, even if that state did not offer allowances in the first auction. The next allowance auction is set for December 17, 2008.
These early auctions, combined with the others being held in the first compliance period, will ensure an ample opportunity for bidders to obtain the allowances they will need for compliance across the entire 10-state region.
RGGI aims to cap carbon emissions from power plants at current levels for several years and then reduce them 10% by 2018.
RGGI intends to hold quarterly auctions during the first RGGI three-year compliance period, which will be from January 1, 2009 to December 31, 2011.
The ten states participating in RGGI are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, New York, Rhode Island and Vermont.
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