On September 24th, power companies with carbon emitting plants in ten states up the northeast will participate in the first Regional Greenhouse Gas Initiative auction for carbon credits. However, the price of carbon will probably not rise above the absolute floor price of $1.86. This effectively means that the "market signal" which will demonstrate the time to pour money into clean energy industries and technology will never arrive.
On September 25th, power companies with carbon emitting plants in ten states up the northeast (Maryland, Delaware, New Jersey, New York, Connecticut, New Hampshire, Massachusetts, Rhode Island, Vermont and Maine), along with financial institutions, environmental and other groups will participate in the first Regional Greenhouse Gas Initiative auction for carbon credits. This regional cap-and-trade program will go into effect on January 1st of next year, holding carbon emissions to 188 million tons annually until 2014, and then scaling emissions back 2.5 percent every year until 2018.
However, it seems that the forces behind RGGI have learned little from Europe's three year old Emission Trading Scheme. Unlike the ETS, RGGI will be auctioning almost all permits, instead of issuing the vast majority, as the ETS did. However, RGGI has its own pitfalls. The cap of 188 million tons was set in 2004, based on projections by energy experts and political pressure from utilities to keep the cap at or above current emissions levels. However, the projected 188 million tons was based on assumptions that carbon emissions would increase, but after 2006 they actually began to decrease due to more mild weather and a slowing economy.
This means that the 188 million tons might end up being as much as a 20 million ton overestimation. An over allowance of credits means that the carbon trading scheme will be ineffective in raising the price of carbon intensive energy sources enough to encourage the deployment of clean energy.
In fact, the price of carbon will probably not rise above the absolute floor price of $1.86. While this is good for consumers, who in effect will only be paying $1.86 for every 100 gallons of gas they burn, it practically makes RGGI ineffective and irrelevant. This fact is compounded by the fact that leftover credits from one auction will rollover to the next, which means it is possible that 2009's extra 20 million tons will roll over to 2010, whose extra 40 million will roll over to 2011 and etc. This effectively means that the "market signal" which will demonstrate the time to pour money into clean energy industries and technology will never arrive.
All these problems add up to create a seemingly insurmountable hurdle to the success of RGGI at driving low-carbon technologies into the market or curbing carbon emissions. And so, RGGI is DOA--dead on arrival. Throw it on the junk heap as just one more example of how cap-and-trade or any other carbon pricing scheme that looks efficient and effective in an economics textbook is simply incapable of achieving its goals in the face of the political and economic realities of the 21st century.
