The Northeast’s Cap-And-Trade System Is Back on Track to Cut Carbon Emissions

Starting in 2010, the cost of the permits in RGGI’s auctions flatlined at just under $2 per ton.  At such a low price, the incentive to cut was low-to-non-existent — a sign that RGGI’s cap was so high it wasn’t reducing carbon emissions beyond what business-as-usual would’ve done.

So the states under RGGI got together and decided to lower the cap.  They dropped it from 165 million tons in 2013 to 91 million tons in 2014.  And it will drop 2.5 percent every following year until 2020.

This past Wednesday was the first permit auction since the cap was lowered.  The clearing price for the permits jumped to $4, the highest it’s ever been at since the auctions and trading started in 2008.  Furthermore, the auction not only sold out all the permits allocated this time around, it sold out all of its backup permits as well.  So demand for the permits is high, indicating the new cap is ramping the incentive to cut emissions back up.

The Northeast’s Cap-And-Trade System Is Back on Track to Cut Carbon Emissions