environment

Carbon permits sell for minimum before New Jersey exits RGGI

Posted 12/12/11

NEW YORK - Carbon-dioxide emissions allowances in the U.S. Northeast were auctioned for $1.89, the minimum allowable bid, as New Jersey prepared to exit the 10-state regional program.

The quarterly auction sold 27.3 million, or 63 percent, of the available 43 million allowances, the fifth-lowest since the program began in 2008, the Regional Greenhouse Gas Initiative said Dec. 9 on its website.

The results bolster New Jersey’s decision to exit RGGI at the end of the year, said Larry Hajna, a spokesman for the state’s Department of Environmental Protection. Republican Governor Chris Christie in May called RGGI “a failure” because permits that were initially projected to cost $20 to $30 never sold for more than $3.51.

“Climate change is real, but RGGI is not working,” Hajna said in an email. “[This] auction results affirm the fact that supply of allowances continues to outweigh demand.”

The auction, held Dec. 7, generated $51.5 million for the states from power producers. Each allowance gives a company the right to emit one ton of carbon dioxide in a cap-and-trade program that includes the six New England states, New Jersey, New York, Delaware and Maryland.

No Motivation

The program was designed to encourage producers to cut emissions and Christie said the low prices won’t motivate them to change their business practices. Requiring companies to purchase allowances drives up costs for the companies, and ultimately customers, he said.

Auction prices have fallen as the worst U.S. economic slump since the Great Depression resulted in consumers spending less on power and cutting demand for emissions allowances, Susan Tierney, a managing principal at the Boston-based consulting company Analysis Group, said by telephone. “Electricity demand is down, so there’s less power production and less pressure on the power sector.”

The states benefit from the revenue generated by the auctions, Tierney said. “Every state gained from participation in RGGI in terms of macro effects, so they’d be turning away from that opportunity if they decide to leave.”

Economic Benefits

States use the auction proceeds for renewable energy programs, utility programs, assisting consumers with bills or to pad their general funds. Analysis Group said the 10 states had received $912 million from power companies through September, in a November report. The program generated a total of $1.6 billion in “economic value,” including auction revenue, jobs created and other factors, the report said.

New Jersey received $118 million in auction revenue. New York received the most, $328 million, followed by Maryland, at $170 million, and $143 million to Massachusetts.

Massachusetts has distributed the proceeds to more than 70 communities, Mark Sylvia, the state’s energy resources commissioner, said by telephone. “We’ve demonstrated over the last three years that a regional approach to an issue like carbon emissions can be successful,” he said.

Other states have considered exiting the program. New Hampshire and Delaware almost opted out of RGGI earlier this year, and Maine’s Legislature approved a measure that gives the state permission to pull out if the total emissions regulated through RGGI fall below 35 million tons a year.

The New Hampshire legislature approved in June a bill to withdraw from the program, and the state senate was one vote shy of overturning Governor John Lynch’s subsequent veto.

Costing Jobs

“Governor Lynch believes that withdrawing from RGGI would cost our citizens jobs and in the future hinder our economic recovery,” Colin Manning, a spokesman for the governor, said by telephone. The state received about $33 million in proceeds, according to the Analysis Group’s report.

Delaware State Senator George Bunting, who originally supported RGGI, sponsored a bill in May to exit the program, saying in a telephone interview that it hasn’t been as effective as he’d hoped. “I had confidence that in the long haul, this was going to prove to be a decent thing,” he said.

Maine’s Governor Paul LePage, who was elected last year, wouldn’t have supported RGGI if he had been in office when it was introduced, said Ken Fletcher, director of the state’s Office of Energy Independence and Security.

“I’m not saying RGGI was a complete failure or a complete success,” he said in an interview. “There was a cost to it, and some good things to come out of it.”

Carbon allowances this year won’t exceed 188 million tons, and next year’s cap will fall to 165 million for the remaining nine states, according to RGGI.

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