Despite speculation by some that putting a tax on carbon emissions will be disastrous for the economy, 10 states are poised to do just that starting Jan. 1. Those who participated in two recent auctions of carbon credits by the states suggest the program can work without damaging the economy, while serving as a model for the country.
Last week in Hartford, all 31.5 million carbon allowances offered for sale were purchased at a price of $3.38 per allowance, for a total of $106.5 million. Rhode Island alone is expected to receive about $2.5 million from that auction and one in September to invest in energy efficiency programs for consumers.
The other participants are Connecticut, Maine, Maryland, Massachusetts, Vermont, Delaware, New Jersey, New York and New Hampshire. The states took action because there was no successful effort to launch a national program to reduce carbon emissions. Congress and the Obama administration are expected to debate a national program this winter.
Each allowance permits one ton of carbon emissions. Starting Jan. 1, local utilities must have enough allowances to cover their emissions, and they must start ratcheting down their emissions to meet new caps.
Peter Grannis, chair of the 10-state cooperative called the Regional Greenhouse Gas Initiative, said in a statement, "Once again the results prove that distributing allowances via auctions in a carbon dioxide cap and trade program can be successful. We look forward to developing a partnership with the Obama administration to create a strong federal climate action program."
W. Michael Sullivan, director of the Rhode Island Department of Environmental Management, took part in last week's auction and said the program is working.
"I think the people who are speculating that this will destroy the economy are unable to look coldly and rationally at the facts," Sullivan said. "What makes it work is you invest in demand management and drive down the consumption of electricity."
The program is one of the few to put a price on pollution. While it will initially make electricity more expensive because utilities have to buy allowances for the carbon they produce, the organizers plan to invest the proceeds from those allowances in energy-conservation technologies and strategies so the public will use less electricity.
Lowering power usage would lead to less production of CO-2, which goes into the atmosphere and contributes to global warming.
Dan Sosland, executive director of Environment Northeast, an advocacy group, added, "Until now, we've essentially been giving power plant owners freedom to pollute. Now states can use the funds from these carbon allowances to make our homes, schools and businesses more energy efficient."
Potomac Solutions, a company hired to monitor the auction, said it found no collusion or manipulation by bidders. A total of 69 entities submitted enough bids to purchase 3.5 times the available supply of allowances in the auction.
The company said it was encouraging that "compliance entities or their affiliates, which should value the allowances most highly, purchased most of the allowances in the auction."
"The program at this point is remarkably successful in that we have gone through two separate auctions," Sullivan said.
Sullivan said at the outset he was "profoundly apprehensive" about the program.
First, he worried whether anyone would put value in a commodity that can't be seen or held.
Second, with all the speculation and malfeasance and manipulation that has destroyed stock values on Wall Street this year, he feared similar practices might upset the carbon auctions. But they did not.
"I am remarkably proud of RGGI's accomplishments and pleased we have been successful," Sullivan said.
Details about last week's auction will be released on Jan. 6, after financial settlements and transfer of CO-2 allowances is completed. The next auction will be March 18.
Plans call for capping local CO-2 emissions at current levels through 2014. The cap will then be reduced a total of 10 percent during the next four years.
(E-mail Peter B. Lord of the Providence Journal at plord(at)projo.com.)
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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