Photo via Alberta
Since 76% of Americans don't even know what cap and trade is, I'm willing to bet that just as many aren't aware that there's a cap and trade system operating in their own backyard. The Regional Greenhouse Gas Initiative requires utilities in Northeastern states to purchase carbon permits for each ton of carbon they emit. The permits can then be traded on the Chicago Climate Futures Exchange. Naturally, the RGGI can be seen as a bellwether for a nationwide cap and trade. Problem is, the price of carbon permits is plummeting--even after good news came that the climate bill passed. As Bloomberg points out:
Carbon dioxide permits in the U.S. Northeast's "cap-and-trade" program are lower now than they were before the U.S. House endorsed a bill in June that would establish an emissions trading program for the whole country.The reason for the falling prices can be chalked up to lower demand: the likes of coal-burning power plants are emitting less CO2 at the moment anyways, because the recession has seen a decrease in energy consumption. In other words, the combination of the economic slump and the looming possibility of a national carbon market is making the RGGI a fickle indicator for a US cap and trade.
Prices fell because of lower demand, as power plants curbed their output of carbon dioxide as the recession cut electricity demand. The price decline followed the June 19 announcement that more than 30 million permits, also known as allowances, had cleared at $3.23 each in a sale June 17, 8 percent lower than the result of an auction in March.And even though unused carbon emission permits purchased for RGGI will be eligible for transfer to the national market if and when the climate bill becomes law, analysts expect prices to continue to decline.
Using the Waxman-Markey bill's formula, falling auction prices will lower the federal exchange rate for RGGI permits issued this year, diminishing their value in the secondary market, Cheung said. He said he expects the trading range of RGGI permits to "steadily shift downward."
More on Cap and Trade:
A Cap and Trade Could Save US Families $900 a Year
Cap and Trade Explained in Under Four Minutes