June 19 (Bloomberg) -- Contracts for carbon dioxide permits in the U.S. Northeast’s “cap-and-trade” program fell to a record low today after prices declined in the latest auction of new allowances.

Regional Greenhouse Gas Initiative credits for 2009 fell 16 cents, or 4.7 percent, to $3.24 on the Chicago Climate Futures Exchange. In the results released today for the auction of 33.1 million permits, the 2009 allowances dropped 28 cents from the March sale price to $3.23.

The decline is due to lower demand for electricity amid the recession and provisions in the climate legislation being debated in Congress that have reduced speculative interest in the regional permits, Milo Sjardin, a New York-based carbon market analyst with New Energy Finance, said by phone.

“The real speculative value of buying an allowance now and getting a good return on it is essentially gone,” Sjardin said.

RGGI raised a total of $104.2 million today in its fourth auction of permits, which included the 2009 credits as well as allowances for 2012. The 2012 credits went for $2.06 each, down 99 cents from the last auction. RGGI has now auctioned more than 110 million allowances and raised $366.5 million since the first sale in September, the 10-state coalition said on its Web site.

The federal legislation, which passed the House Energy and Commerce Committee last month, would suspend state-based cap- and-trade programs in 2012 and compensate those left holding any unused RGGI permits with federal allowances.

Federal Legislation

The federal bill, written by House Democrats Henry Waxman of California and Ed Markey of Massachusetts, would hand out only enough federal allowances to cover the cost of buying them at auction.

“What you get back is what you paid for (the RGGI allowance) plus the cost of holding it,” Sjardin said.

Compared with 2009 RGGI permit prices of between $3 and $4 each, the Congressional Budget Office has estimated federal carbon dioxide allowances would be worth $15 at the start of a national cap-and-trade program.

The trading today below the auction price “was probably a few financial players hedging out of existing positions” when the results came in below the March offering, Paul Tesoriero, a director at emissions brokers Evolution Markets, said by phone. Prices had climbed across past auctions and “this was the first downtick clearing price.”

The auction clearing price was not a low. RGGI’s first auction of 2009 permits was held Sept. 25 and cleared at $3.07.

‘Uncertain Times’

A smaller number of 2012 RGGI permits were included in the auction, which was held June 17 with the results withheld until today. This was RGGI’s second offering of 2012 permits, and the clearing price was down 32 percent from March.

The 2012 permits dropped further than the 2009 allowances because the rules of the RGGI program create more demand for the earlier “vintage,” Sjardin said.

RGGI requires power plants to surrender carbon dioxide permits to state environmental regulators once every three years. The first compliance period started this year and runs to 2011. The second compliance period starts in 2012, the proposed start date for a national cap-and-trade program under the Waxman-Markey bill. Permits from that year cannot be used for RGGI compliance before then.

“In these uncertain times, it’s better to have something you can use now,” Sjardin said.

RGGI Fundamentals

RGGI’s annual greenhouse gas targets, or caps, were set in 2005 and gave the power plants regulated by the program room to increase their emissions before the targets became enforceable this year.

Instead, emissions fell as the economy slowed. RGGI data from 2007, the latest the regional emissions trading program has made available, were 8.9 percent below the cap.

Since then, the recession has further eroded demand for electricity in the Northeast. New Energy Finance expects carbon dioxide output from RGGI-regulated power plants to be 21 percent below the cap this year, Sjardin said.

In prior auctions held in December and March, clearing prices for 2009 RGGI permits climbed on speculation that the state-level allowances would be more valuable in a federal cap- and-trade system.

Bidders in this week’s RGGI auction were more motivated by the use of the permits to meet regional, not federal, greenhouse gas targets, said Lisa Zelljadt, a Washington-based analyst with energy and environmental market analysis firm Point Carbon.

“This closing price reflects that market players are looking at fundamentals more than having a chance to convert to federal allowances,” Zelljadt said.

The states participating in RGGI are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.

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To contact the reporter on this story: Simon Lomax in Washington at slomax@bloomberg.net.

Last Updated: June 19, 2009 17:34 EDT