The 20th carbon emissions allowance auction conducted by the Regional Greenhouse Gas Initiative (RGGI) for 9 participating northeastern and mid-Atlantic states was sold out of all 38.7 million allowances at a clearing price of $3.21 per short ton, a 15 percent mark-up from the last auction in March.
The RGGI auction was held last Wednesday, and demand continues to be strong from auction to auction, as it has in other regions like California. Bids for the CO2 allowances ranged from $1.98 to $5.55 per allowance. Winning bidders pay the price of the lowest winning bid, but allowance permits are allotted to the highest bidders first and then in descending order, until allowances are sold out.
The auction generated $124.4 million for reinvestment by the RGGI states in a variety of consumer benefit initiatives, including energy efficiency, renewable energy, direct bill assistance, greenhouse gas abatement and climate change adaptation programs.
The RGGI is a mandatory cap-and-trade system, established in 2009, covering the power sector in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont.
In February, RGGI states agreed to program reforms that will lower the cap by 45 percent, starting in 2014. Emissions had fallen from 2005 due to lower natural gas prices and the recession. The carbon market had been oversupplied with allowances by about 30 percent, in proportion to emissions from when it began, keeping allowance prices below $2/t for most years, according to energy and environmental analysis firm Thomson Reuters Point Carbon.
The high clearing price and strong demand show that market participants are confident in the program reforms and are already planning for a carbon-constrained future, according to analysts at the firm.
Last month, California raised more than $280 million selling greenhouse gas emissions permits in its third auction, with businesses paying a record $14 per metric ton for the right to release carbon this year.