Comments on: Have the RGGI states repeated the mistakes of the European carbon trading system? http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/ The Latest on Climate Science, Solutions, and Politics Sun, 08 Nov 2009 12:18:00 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: shop http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/#comment-27340 shop Fri, 16 Jan 2009 15:37:35 +0000 http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/#comment-27340 Third, by creating a consensus model rule the RGGI rule enabled credits to be traded across all 10 states, which increases the fungibility of the credits. Larger markets create more opportunities for trades and hence function more efficiently in terms of finding a price. Third, by creating a consensus model rule the RGGI rule enabled credits to be traded across all 10 states, which increases the fungibility of the credits. Larger markets create more opportunities for trades and hence function more efficiently in terms of finding a price.

]]> By: John Kelly http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/#comment-26325 John Kelly Wed, 07 Jan 2009 14:33:15 +0000 http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/#comment-26325 If you take a look at NY specifically. the carbon cap is 62 million tons. In 2006 NY generators emitted 51 million tons. Another important trend is that electricity demand has been basically flat since 1990. Aggressive energy efficiency programs, greater focus on carbon by building owners, and a weakening economy could send NY's carbon emissions below 45 million tons by 2015, rendering RGGI irrelevant as currently designed. What is most concerning to our company is that RGGI left the consumer out of the carbon initiative. Even though consumers stand ready to reduce significant amounts of electricity consumption and associated carbon through energy efficiency, RGGI did not provide provisions for EE to retire carbon allowances. In NY, it is not out of the question for consumers to retire the equivalent of 10 million tons of carbon emissions annually through energy efficiency. Under RGGI it could take decades for the caps to catch up with the market. If you take a look at NY specifically. the carbon cap is 62 million tons. In 2006 NY generators emitted 51 million tons. Another important trend is that electricity demand has been basically flat since 1990. Aggressive energy efficiency programs, greater focus on carbon by building owners, and a weakening economy could send NY’s carbon emissions below 45 million tons by 2015, rendering RGGI irrelevant as currently designed.

What is most concerning to our company is that RGGI left the consumer out of the carbon initiative. Even though consumers stand ready to reduce significant amounts of electricity consumption and associated carbon through energy efficiency, RGGI did not provide provisions for EE to retire carbon allowances. In NY, it is not out of the question for consumers to retire the equivalent of 10 million tons of carbon emissions annually through energy efficiency.

Under RGGI it could take decades for the caps to catch up with the market.

]]> By: John Kelly http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/#comment-26324 John Kelly Wed, 07 Jan 2009 14:26:18 +0000 http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/#comment-26324 If you take a look at NY specifically. the carbon cap is 62 million tons. In 2006 NY generators emitted 51 million tons. Another important trend is that electricity demand has been basically flat since 1990. Aggressive energy efficiency programs, greater focus on carbon by building owners, and a weakening economy could send NY's carbon emissions below 45 million tons by 2015, rendering RGGI irrelevant as currently designed. What is most concerning to our company is that RGGI left the consumer out of the carbon initiative. Even though consumers stand ready to reduce signficant amounts of electricity consumption and associated carbon through energy efficiency, RGGI did not provide provisions for EE to retire carbon allowances. In NY, it is not out of the question for consumers to retire the equivelant of 10 million tons of carbon emissions annually through energy efficiency. Under RGGI it could take decades for the caps to catch up with the market. If you take a look at NY specifically. the carbon cap is 62 million tons. In 2006 NY generators emitted 51 million tons. Another important trend is that electricity demand has been basically flat since 1990. Aggressive energy efficiency programs, greater focus on carbon by building owners, and a weakening economy could send NY’s carbon emissions below 45 million tons by 2015, rendering RGGI irrelevant as currently designed.

What is most concerning to our company is that RGGI left the consumer out of the carbon initiative. Even though consumers stand ready to reduce signficant amounts of electricity consumption and associated carbon through energy efficiency, RGGI did not provide provisions for EE to retire carbon allowances. In NY, it is not out of the question for consumers to retire the equivelant of 10 million tons of carbon emissions annually through energy efficiency.

Under RGGI it could take decades for the caps to catch up with the market.

]]> By: Peter Wood http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/#comment-19310 Peter Wood Fri, 19 Sep 2008 13:54:11 +0000 http://climateprogress.org/2008/09/19/have-the-rggi-states-repeated-the-mistakes-of-the-european-carbon-trading-system/#comment-19310 It will be very interesting to see how RGGI develops. The issue of overallocation will be a little different to the EU ETS because as far as I understand, there is unlimited banking of permits, so the carbon price won't completely collapse. This raises an interesting design question. Suppose X permits are auctioned, and Y permits are not exercised and are banked instead. Then in the following year do you auction X*0.975 permits (2.5% less than was first auctioned) or do you auction X*0.975 - Y permits? The former option means that over-allocation leads to depressed prices for longer; the latter option is much better if the purpose of the RGGI is to actually reduce emissions. An alternative way of setting the trajectory is by introducing a price floor. One option for introducing a price floor is by having the regulator buy back permits, but this has quite a few problems. A better way to maintain the price floor is by having firms pay an 'extra fee' per tonne CO2e when they exercise their permits (an 'exercise price'). The carbon price is then equal to to the sum of the permit price and the exercise price. This approach has some of the advantages of a carbon tax, but maintains the cap of an emissions trading scheme. It will be very interesting to see how RGGI develops. The issue of overallocation will be a little different to the EU ETS because as far as I understand, there is unlimited banking of permits, so the carbon price won’t completely collapse.

This raises an interesting design question. Suppose X permits are auctioned, and Y permits are not exercised and are banked instead. Then in the following year do you auction X*0.975 permits (2.5% less than was first auctioned) or do you auction X*0.975 – Y permits? The former option means that over-allocation leads to depressed prices for longer; the latter option is much better if the purpose of the RGGI is to actually reduce emissions.

An alternative way of setting the trajectory is by introducing a price floor. One option for introducing a price floor is by having the regulator buy back permits, but this has quite a few problems. A better way to maintain the price floor is by having firms pay an ‘extra fee’ per tonne CO2e when they exercise their permits (an ‘exercise price’). The carbon price is then equal to to the sum of the permit price and the exercise price. This approach has some of the advantages of a carbon tax, but maintains the cap of an emissions trading scheme.

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