Bad luck tends to come in threes, and so it has gone with the Northeast's Regional Greenhouse Gas Initiative, which started January 1 with much excitement as the first US carbon cap-and-trade program.
The first stroke of bad luck came with the US economic recession that started last year and continues to push down energy demand and corresponding CO2 emissions. RGGI power generators, the only emitters subject to the 10-state program, now have plentiful allowances to buy in the program's quarterly auctions or out in the market.
The second stroke of bad luck came with the financial-sector crisis, which has meant less financial player interest in the program than initially expected and less demand for allowances. RGGI's last four auctions have seen heavy compliance-buyer interest, with 78-85% of allowances awarded to them. The percentage has also been steady, indicating financials are not rushing into the auctions as the program exits its honeymoon period.
The third, and arguably the most market-debilitating stroke is the major push by Congress to institute a national cap-and-trade scheme, throwing into question the future of RGGI and the longer-term value of RGGI allowances, past the program's 2009-2011 compliance period.
The House of Representatives passed a bill in June that set the transfer value of RGGI allowances at the average of a given compliance year's auction price. The Senate has yet to unveil its language, leaving the market in limbo about final language and when a bill will be in President Barack Obama's hands.
The expectation of a federal program has also deterred one major-emitting state, Florida, from becoming a RGGI member, a move that could have goosed allowance interest and prices by greatly increasing the size of the program: Florida's power sector emits over twice the emissions of RGGI's largest state, New York, and would have raised RGGI's total 188-million-short-ton cap by about 75%.
No doubt the RGGI states would like to see their luck change, as they have watched expectations of $7-$10 RGGI allowances hit the hard reality of poor timing tied to unforeseeable macroeconomic events. Prices recently have been down below $3/st, with expectations of them falling further and closer to the auction's $1.86/st reserve price.
While the 10 Mid-Atlantic and Northeast RGGI states have received $366.5 million to date from auctioning allowances, the money is arguably far less than what they had hoped for or expected. Mostly they put it toward things like renewables and "clean energy," and states' financial situations right now could certainly use the boost.
Considering allowance prices were around $5 in mid-2008, the RGGI states could be said to have lost $184 million to dumb luck. Timing can be everything.
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