On December 8 2008, I became the first Canadian to help “retire” 12 tons of carbon from the carbon cap and trade system that covers emissions from power generating plants in the U.S. northeast. To be precise, I paid US$100 to buy 12 allowances (1 allowance = 1 ton) through the Regional Greenhouse Gas Initiative (RGGI). What did this accomplish? The allowance broker, in this case the Adirondack Council, says it will retire these allowances, i.e., remove them permanently from the system , on my behalf—rather than trading them with emitting companies. The Council claims this will remove an equivalent amount of carbon from the atmosphere.
How valid is this claim? Under cap and trade rules, companies can emit carbon up to the cap. If a company wants to emit over its cap, it has to purchase allowances. If there are no allowances left to purchase, then, theoretically, too bad—the company cannot emit any more carbon. The RGGI covers power plants (and only power plants), which means that the company would have to stop running its fossil-fired generators.
Would politicians in the ten RGGI states allow fossil-fired power plants to go offline at, say, three in the afternoon on a hot summer weekday if those plants had already reached their emission caps? That is the crux of the matter. RGGI is supposed to spur the right kind of investment to make sure politicians don’t ever have to make that kind of decision.
RGGI aims to lower the cap gradually through 2018, meaning that allowances will become scarcer as time passes. Since emitting companies are required to buy (and can sell or trade) allowances, this means allowances will become ever-more expensive, thereby, again theoretically, forcing emitters to find other non-fossil-fueled ways of putting electricity into the grid.
The inaugural RGGI auction raised over $38.5 million from the sale of over 12.5 million allowances, at a clearing price of $3.07 per allowance (see the RGGI press release). The $38.5 million will go to promoting renewable energy and conservation in the ten RGGI states. The Adirondack Council bought 1,000 of the allowances (and sold four of them to me on December 8). By removing these 1,000 units from the trading system, the Council hopes to put immediate pressure on emitters in the RGGI to find these other ways.
The potential problem with this, in my view, is RGGI’s conception of the right technological shift. The express aim is to put a price on carbon emissions, thereby sending a market signal that will “support the investment in clean energy technologies.” “Clean” appears to mean “renewable,” which means wind, solar, biomass. A combination of these generating technologies, plus conservation (i.e., making do with less) is supposed to produce a ten percent reduction in greenhouse gas emissions through the ten-state RGGI area. As I mentioned, the auction proceeds will go to promoting these technologies plus conservation.
As I have made plain elsewhere, a ten percent emission reduction from a mature modern power system with significant coal assets is possible only if a good proportion of those coal assets are replaced with nuclear and/or gas-fired generators. Is this happening in the RGGI states? To a degree, yes. Unistar plans to add 3,200 megawatts of nuclear power in RGGI states: a 1,600 megawatt machine at the Calvert Cliffs plant in Maryland, and a similar unit at the Nine Mile Point plant in New York; see article. This 3,200 MW of nuclear capacity will play by far the biggest role in meeting the RGGI target.
Ironically though, RGGI auction proceeds and market signals are not providing the initial stimulus to these projects. That is coming from the U.S. federal government, in the form of loan guarantees, construction delay insurance, and power production tax credits intended to spur new nuclear development in the U.S. These were enacted in 2005, long before the current bailout binge.
It is not a sure thing that the federal incentives will achieve the desired purpose (see Dan Yurman’s recent article on this issue). But this stands a better chance than RGGI of actually getting shovels into the ground.
As a participant in the RGGI allowance market, I am now emotionally invested in seeing that RGGI achieves its reduction target. I’d like to see the proceeds from future auctions go to the technologies that have the best hope of meeting the target.