The price of carbon under the Regional Greenhouse Gas Initiative or RGGI is on the rise. For some time the cost that a New England Power plant has paid for the right to emit a ton of carbon dioxide was bumping along near the floor price of $1.98.
That price has jumped ever since the RGGI states announced that they would lower the cap on carbon dioxide, bringing it in line with the lower emissions that have resulted from the region’s switch to natural gas. In the last two auctions, carbon has gone for $2.80 and $3.21 a ton.
"Prices are going to stay at the $3 to $4 dollar level, we expect those prices are going to stay through this year and next," says Ashley Lawson, an analyst with Thomson Reuters.
She says are emitters are rushing to stock up on carbon before the cap is reduced. In this last auction there were twice as many bids as available carbon allowances. Lawson also notes that for the first time, banks and investment firms are participating in the carbon auction, hoping to re-sell the carbon allowances to power plants and utilities for a profit after the carbon cap is lowered.
The higher carbon price will continue to push the region toward using natural gas to generate electricity. "If gas prices creep up, all of the sudden carbon becomes a larger part of the story," says Lawson, also noting that "the carbon story isn’t just about keeping gas competitive with coal, it’s also about keeping Renewables competitive with gas."
The auctions take place quarterly, when the RGGI states offer up allowances that "compliance entities" - anyone owning a power plant - are required to buy. In New Hampshire up to $1 per ton of the proceeds are sent to energy efficiency programs administered by the utilities, and the rest is rebated to consumers thanks to a change made by last year's legislature.
Note: an earlier version of this story had the clearing price at the most recent auction at $3.20 a ton, when in actuality it was $3.21