Some Carbon Dioxide Emissions Permits Don't Sell in U.S. Northeast Auction

Carbon dioxide permits in the U.S. Northeast’s cap-and-trade program for power plants drew a record low price at auction this week amid a surplus of the pollution rights. Some went unsold.

Permits from the Regional Greenhouse Gas Initiative’s first “control period” from 2009 to 2011 fell 2 cents from the last auction held in June to $1.86 each, the minimum allowable bid, according to the cap-and-trade program’s website. Each permit represents one ton of carbon dioxide.

Of the 45.6 million permits offered from the first control period, 34.4 million were sold. This week’s auction, held Sept. 8 with the results released today, also offered 2.14 million permits from the 2012-to-2014 control period. Of those, 1.31 million sold for the $1.86 minimum allowable bid, the same price they fetched in June.

The failure to sell a quarter of the permits offered in this week’s auction has “definitively shown that the market is oversupplied,” Paul Tesoriero, director of environmental trading at Evolution Markets LLC in White Plains, New York, said in a telephone interview. “People are not going to buy something they don’t need.”

Surplus of Permits

A gap between the carbon dioxide output from power plants and the number of permits being issued by the Northeast states has created a surplus of the pollution rights. The states decided in 2005 how many permits to issue, leaving room for emissions to rise before trading began in the regional carbon market. Instead, emissions fell as the economy slowed.

The cap-and-trade program, which spans 10 states from Maryland to Maine, now issues 188 million permits a year. Power plants in the region released 136 million tons of carbon dioxide last year by burning fossil fuels such as coal and natural gas, according to Bloomberg New Energy Finance estimates.

Factors other than a weaker U.S. economy have contributed to the drop in pollution from the region’s power plants since 2005, said Peter Shattuck, a carbon markets policy analyst at Rockport, Maine-based advocacy group Environment Northeast.

Natural gas, the cleanest-burning fossil fuel, is being used more than expected to generate electricity because its price has fallen, Shattuck said. Natural gas futures, which climbed above $15 per million British thermal units in December 2005, are less than $4 on the New York Mercantile Exchange.

‘Emissions Down’

Higher output from carbon-free sources such as nuclear reactors, hydroelectric dams and wind turbines has also cut back the amount of power coming from coal- and oil-fueled power plants, Shattuck said.

“Emissions are down and will continue to be down,” he said.

The states that run the cap-and-trade program will spend most of the $66.4 million raised in this week’s auction on “investments in energy savings and clean energy,” David Littell, commissioner of the Maine Department of Environmental Protection, said in an e-mail.

In the secondary market, permits for December delivery fell 2 cents, or 1.1 percent, to settle at $1.89 on the Chicago Climate Futures Exchange, matching the record low for the contract set on July 7.

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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.