Going once, going twice, sold, CO2
In these days of foreclosed homes, auctions have become too routine to be noticed – with one notable exception.
“We’re getting inbound calls from eastern European companies about this,” said Phil Adams, president of Worcester, Mass.-based World Energy Solutions, which is running the nation’s first auction for greenhouse gas emissions, which starts Thursday.
“I don’t think 50 Super Bowl ads could have gotten us the publicity in the green world that being selected by RGGI has done for us.”
RGGI, pronounced “Reggie,” is the Regional Greenhouse Gas Initiative, a complex attempt by 10 Northeastern states, from Maryland to Maine, who want to start limiting the greenhouse gas CO2 through the free
market, prodded (gently, they hope) by regulators. market, prodded (gently, they hope) by regulators.
A similar system helped contain acid rain in the Northeast and Europe has had CO2-limiting arrangements in place for several years, so RGGI isn’t entirely unique. But this is the first time that the United States has taken any kind of government action against greenhouses gases, and RGGI is taking the unusual step of distributing some of the so-called “allowances” through an open auction, rather than having governments hand them all out.
This novelty means plenty of people will be watching.
“The states are really showing tremendous leadership, nationally and internationally, by getting RGGI up off the ground,” said Derek Murrow, director of policy analysis for the environmental group Environment Northeast. “A lot of folks will be looking at RGGI as a model.”
Not everybody is happy with it, though.
Joseph Kenney, who is trying to unseat Gov. John Lynch in the November election, says he will ask the state Legislature to back out of RGGI.
“The last thing we need to do in these economic times is raise the cost of electricity for consumers,” Kenney said.
In response, Lynch reiterated his support, even if it’s going to produce less money for conservation than anticipated.
“RGGI is a long-term plan, and all the other governors along with myself are very supportive of going ahead with RGGI,” he said.
First, however, the auction has to work.
“It’s like Matt Cassel’s first game last week,” joked Adams, who was interviewed a few days after the Patriots’ replacement quarterback took the field in his much-discussed maiden effort.
World Energy Solutions was established in 1996. The three founders came from around New England, and chose Worcester as a low-cost central location.
The company specializes in electronic trading of energy and environmental commodities – sort of power producers’ equivalent of a stock exchange – and has grown as deregulation and technology have made online swaps easier. It has about 25 employees in Worcester and 60 overall, with offices in Washington, D.C., Houston and Columbus, Ohio.
Adams said that overall, the company has run about 11,000 auctions for various federal and state agencies. RGGI is one of their top 20 customers, he said, but its high-profile nature makes it more important than that. If other regions, or the U.S. as a whole, follow suit, World Energy Solutions hopes to be at the head of the pack for getting the contract.
Thursday’s auction is the first quarterly sale for RGGI. New Hampshire isn’t participating until the next auction in December, because we’ve been slow to develop rules designed to protect our interests. (New York, New Jersey and Delaware are in the same boat.)
Bids will placed by power plants who need carbon “allowances” to meet customer needs, by financial players speculating that the credits will go up in value, or environmental groups using the marketplace to help trim emissions.
Nobody is saying how many bidders have been accepted for this first round, because that information can help bidders decide how much to pay.
The sale will take place in a single round, uniform price auction, lasting three hours after 9 a.m. Thursday.
They’ll bid through a Web browser using their special sign-in and password, just like bidding on eBay. But unlike eBay bidders won’t know what other people are willing to pay, and the final amount you pay is determined by what is known as the “clearinghouse” price, calculated depending on how many bids for how many allowances came forward at which prices.
The whole setup is pretty complicated, which is one reason World Energy won the contract. It has the software and expertise to make this run – or so it hopes.
The big question for regulators is what price people are willing to pay for the allowances, each of which allows emitting one ton of CO2. If it’s too low, there’s little incentive for power plants to cut back; if it’s too high, electric rates could leap, leading to an outcry that could scuttle the whole project.
Price is largely a function of how many allowances are on the market. The European Union, for example, was criticized for distributing so many allowances that they became almost valueless for a time.
RGGI is providing more allowances than are needed at the moment, and limited trading on futures markets has dropped their value from $6 to less than $5. The auction set a floor price of $1.86 per emission credit, and it’s anybody’s guess what actual bidders will pay.
Whatever happens from the financial point of view, however, the mere fact that RGGI is happening is exciting.
“This is really kind of a big deal,” said Joanne Morin, climate and energy programs manager for the state Department of Environmental Services.