ANNAPOLIS – The sale of greenhouse gas allowances at the nation’s first government-mandated, cap-and-trade auction netted $38.6 million, according to figures released Monday by a consortium of 10 states including Maryland.
The Regional Greenhouse Gas Initiative, RGGI, is a 10-state coalition designed to limit the amount of carbon dioxide that is released into the atmosphere. RGGI is a program that establishes a regional cap on emissions and then auctions allowances, or the right to emit carbon dioxide, to power plants within the region.
Under RGGI, pronounced Reggie, all fossil fuel-burning plants in the 10-state region are required to purchase allowances in order to emit carbon dioxide.
Maryland, Connecticut, Maine, Massachusetts, Rhode Island and Vermont participated in this first auction, which took place Sept. 25. All of the allotted 12.5 million allowances were sold during the three-hour period at the New York Stock Exchange.
The other states in the consortium – Delaware, New Hampshire, New Jersey, and New York — will take part in future auctions.
An allowance represents one ton of carbon dioxide and will be sold at quarterly auctions. Allowances can be traded or sold and used by a regulated facility in any of the RGGI states.
The regional cap, 188 million tons per year, was set by agreement among the 10 states. This number will be enforced through 2014, after which the cap will be reduced 2.5 percent each year.
A cap and trade program is seen by many as environmentally beneficial because it places a specific limit on emissions, something the federal government has refused to do.
Proponents suggest that selling the right to emit carbon dioxide and then decreasing that amount over time, gives power plants an incentive to reduce their emissions and develop ways to produce cleaner energy.
The allowances in the first auction were sold to 59 participants – among them various energy, environmental and financial sectors – at a rate of $3.07 per allowance, $1.21 higher than the minimum set price.
Proceeds from the auction will be used to fund energy efficiency programs, renewable energy technologies and rate relief programs. The $38.6 million will be distributed among the six states.
Maryland was allotted 42 percent of the allowances sold in the first auction, the largest amount of the six states.
“This is tremendously exciting because we are turning the corner from planning to implementation,” said Shari T. Wilson, secretary of the Maryland Department of the Environment.
On Sept. 17, the Maryland Energy Administration outlined the potential programs that will be funded by revenue from RGGI at the first meeting of the Strategic Energy Investment advisory board. The board, appointed by Gov. Martin O’Malley, consists of energy experts and consumer advocates throughout the state.
The Maryland Energy Administration hopes to earn $50 million from the fiscal year 2009 auctions to fund the programs. Of that $50 million, almost half would go to fund low and moderate income energy efficiency and conservation programs, with the rest being used for residential rate relief, low-income energy assistance, and clean energy, outreach and education programs.
“As huge as this strategic fund is going to be, its not going to solve the problem,” said Malcolm D. Woolf, director of the Maryland Energy Administration, at the Sept. 17 meeting.
Maryland joined the RGGI coalition in 2006, after the passage of the Healthy Air Act, which called for significant reduction in carbon dioxide pollution.
Part of the act required the Department of the Environment to study reliability and cost issues associated with RGGI. The study, conducted by the University of Maryland, found there would be “virtually no effect on the price of electricity paid by rate payers in Maryland.”
Wilson said electric bills may increase initially, estimating $1 per month. But he said consumers would save money in the long run because of the savings from the programs developed by the fund.