The Regional Greenhouse Gas Initiative (RGGI), the first mandatory cap-and-trade auction in the U.S., opens Thursday. It is expected reduce CO2 emissions by 10 percent in ten years, MarketWatch reports.
CO2 trading already takes place on the Chicago Climate Exchange on a voluntary basis, but RGGI marks the first auction of its kind and is expected to attract power companies, environmental groups and investors.
RGGI limits power plants’ CO2 emissions from ten participating states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.
Six states will take part in today’s auction of 12.5 million carbon permits. The remaining four states will join in for subsequent auctions, which will be held quarterly.
RGGI’s Executive Director, Jonathan Schrag, told Financial Times, that “It will be an example to the [federal] government and other states of how cap-and-trade can work.”
Some businesses say the initiatives will impose extra costs on energy consumers and could add to some state’s economic problems, making them less competitive.
The bidding is open to everyone, but experts predict that demand from U.S. Northeast power companies will be low because the region’s emissions of the gas has slipped over the last few years and were about 9 percent below the group’s cal of 1888 million tons of CO2 in 2007.
Schrag has said before that the group could retire allocations if they fail to sell in the auction for the $1.86 per ton reserve price.
Just recently, the Western Climate Initiative, made up of seven U.S. states and four Canadian provinces, unveiled a draft of its 2012 cap-and-trade program.