On the same day as a historic stock market collapse, we get news of a successful auction of the right to emit carbon dioxide. The Regional Greenhouse Gas Initiative (RGGI, or "Reggie") announced that last week's sealed-bid auction sold all the available CO2 emissions allowances for $3.07 per ton; this was the first chance for power plants in the ten Northeast states that participate in RGGI to buy allowances. RGGI becomes mandatory in 2009, and there will be thirteen more auctions before the first real accounting in early 2012.
This auction is also historic; although Europeans have been trading CO2 in a massive mandatory market for several years, those allowances were initially given away. RGGI only covers power plants and seeks to merely cut emissions 10% below current levels by 2019, but it can now claim the world's first CO2 auction.
Voluntary CO2 markets have existed in the United States for several years. The Chicago Climate Exchange set up a trading mechanism for greenhouse-gas reductions, but it has been buffetted by the inability of the federal government to make any progress on climate change legislation. Instead, regional organizations like RGGI and the California-led Western Climate Initiative have taken the lead, causing uncertainty over standards. Each region plans to regulate different industries and emissions, measure by varying methodogies, and reach independent goals. Meanwhile, some leaders continue to call for a carbon tax instead of a market for emissions.
At Farm Power, we will be reducing methane emissions from manure storage. Methane has at least 21 times the climate-changing power of carbon dioxide, so our reductions will be significant. We spent quite a bit of time last year exploring a sale of our reductions into the RGGI market, which allows power plants to buy a small percentage of offsets from projects like ours rather than buying allowances at auction. However, the RGGI offset system had yet to fully mature; we now expect to sell into the voluntary market for quite a few years until the alternatives become clear.
For today, we congratulate RGGI for pulling off its auction. The price stayed above the minimum, and now speculators have a new currency to trade in--a toast to the free market!