A couple of carbon market-related news items caught my eye recently. While not an exhaustive list, these items are important to discuss:
EU Cancels Carbon Auction, Prices Drop
RGGI Nets $106 Million For Clean Energy, May Hit $2 Billion By 2020
The EU auction failed because bids didn’t reach a secret reserve price. “In the past five years, carbon prices on the ETS have plummeted nearly 90 percent.” The core problem with the ETS is oversupply of credits. The article points out possible solutions: backloading or long-term structural change. I’m not an expert on carbon markets, but my understanding leads me to support the long-term structural change course. The ETS tried to please too many vested interests simultaneously (too complex) and resulted in pleasing too few while not achieving its core objective of emissions reductions resulting from a market signal.
On the other hand, The Regional Greenhouse Gas Initiative had its successful 19th auction of CO2 allowances earlier this month. I wouldn’t characterize it as bad news, but the clearing price of $2.80 per ton, above the reserve price of $1.98 per ton, is too low to directly impact CO2 emissions; it is also lower than the price in Europe and California. Utilities in the region are switching to cheaper fuel sources because they’re cheaper, not because they emit fewer CO2 emissions. According to the article, a significant portion (63%) of the $105.9 million in this quarter’s revenue and the $617 million in historical revenue are earmarked for clean energy technologies like energy efficiency, renewables, and climate change adaptation across RGGI’s nine Northeast US member states. I would certainly like to read a more in-depth analysis of this claim. Where specifically have the investments gone and what are the results to date?
The RGGI realizes their reserve and clearing price are too low:
Just over a month ago, the RGGI states decided to reduce the 2014 CO2 budget (the “cap” in cap-and-trade) from 165 million to 91 million tons and retire unsold 2012 and 2013 allowances. This 45% cut is expected to boost allowance prices to $4 per ton in 2013 and up to $10 per ton in 2020, creating billions of new revenue every year. By comparison, RGGI allowance auction clearing prices have never risen higher than $3.51.