First Auction of CO2 Emission Allowances in United States

At a bell-ringing ceremony held today at the New York Mercantile Exchange in lower Manhattan, the Regional Greenhouse Gas Initiative (RGGI) marked the opening of the first-in-the-nation auction for carbon dioxide emission allowances. The ceremony, which was attended by Governor David A. Paterson of New York and Governor Jon S. Corzine of New Jersey, Ian A. Bowles, Secretary for Massachusetts Executive Office of Energy and Environmental Affairs, Laurie Burt, Commissioner, Massachusetts Department of Environmental Protection, Robert Calendar, Vice President of the New York State Energy Research and Development Authority, Phil Guidice, Commissioner of Massachusetts Division of Energy Resources, Lisa Jackson, Commissioner, New Jersey Department of Environmental Protection, and Shari Wilson, Secretary, Maryland Department of Environmental Protection, served to mark the most serious effort yet in the United States to address climate change.

RGGI will reduce carbon dioxide (CO2) emissions through a mandatory, market-based cap-and-trade program. Under RGGI, the ten participating states will stabilize power sector carbon emissions at their capped level, and then reduce the cap by 10 percent at a rate of 2.5 percent each year between 2015 and 2018. As promised in the 2005 RGGI Memorandum of Understanding, all participating states plan to have implementing regulations in place by January 1, 2009. Revenues from the carbon allowance auctions will be invested by the participating states in energy efficiency programs, renewable energy stimulus efforts and other programs to benefit consumers.

The RGGI auction held today offered 12,565,387 allowances, including CO2 allowances issued by Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont. The CO2 allowances purchased at this 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 this auction.

Other RGGI participating states will offer allowances for sale in future auctions as they complete their necessary rulemaking proceedings. A second auction is scheduled for December 2008, with all RGGI participating states expected to offer allowances for sale in the first 2009 auction. Future sales of CO2 allowances are planned through a steady offering of allowances in quarterly auctions. States have committed to offer for sale before the end of 2011 all of the allowances they are putting into the auctions for the first three-year compliance period. Regulated power companies must hold enough allowances to match their CO2 emissions for the first compliance period by March 1, 2012.

The RGGI states have retained a professional independent market monitor, Potomac Economics, to oversee auctions and subsequent market activity. The monitor will observe the conduct of the auction qualification process as well as the auction itself, and will report on whether the auction was conducted in accordance with the participating states’ regulations and the noticed auction procedures and whether the auction results represented a competitive outcome.