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Carbon Permits in Northeast May Hit 'Floor' Price at Auction
2010-09-08 12:24:49.795 GMT
By Simon Lomax
Sept. 8 (Bloomberg) -- Carbon dioxide permits to be
auctioned today in the U.S. Northeast will probably sell at or
near the minimum bid of $1.86 each amid weak demand for the
pollution rights, an emissions broker and an analyst said.
Permits in the Regional Greenhouse Gas Initiative, a cap-
and-trade program for power plants, sold at the last auction in
June for $1.88 each. It was a record low auction price for
permits from the cap-and-trade program's first phase, or
"control period," which began last year and runs through 2011.
The price in today's auction will be "at or near the floor
of $1.86 because there's no reason to bid any higher," Paul
Tesoriero, director of environmental trading at Evolution
Markets LLC in White Plains, New York, said in a telephone
interview. "The market is oversupplied and the states running
the cap-and-trade program can't cut the supply of carbon dioxide
allowances until 2012 or later."
A gap between actual carbon dioxide output from power
plants and the number of permits being issued by the Northeast
states has built up a surplus of the pollution rights. The
states decided in 2005 how many permits to issue and left room
for emissions to rise before the start of the cap-and-trade
program. Instead, emissions fell as the economy slowed.
The cap-and-trade program, covering 10 states from Maryland
to Maine, currently issues 188 million permits, each
representing one ton of carbon dioxide, a year. Power plants in
the regional carbon market released 136 million tons of carbon
dioxide into the air last year, according to Bloomberg New
Energy Finance estimates.
Review in 2012
The surplus will probably persist unless the officials in
charge of the carbon trading program change the rules to cut
back the number of available allowances, or "tighten the cap,"
Milo Sjardin, New Energy Finance's head of North American
analysis, said in a telephone interview.
The program's rules aren't due for review until 2012.
Bloomberg LP, the parent of Bloomberg News, announced the
acquisition of New Energy Finance on Dec. 10.
Today's auction will offer 45.6 million permits from the
cap-and-trade program's first control period and 2.14 million
from its second phase, which runs from 2012 to 2014. The results
won't be released until Sept. 10. At the June auction, permits
from the second control period went for the $1.86 minimum bid.
In the secondary market, permits for December delivery fell
2 cents, or 1 percent, to $1.91 yesterday on the Chicago Climate
Futures Exchange. The carbon contracts have fallen 17 percent
this year.
Trading Declines
Trading volumes have also dwindled, Sjardin said. The
number of Northeast carbon futures contracts traded on the
Chicago exchange from January to July this year fell nearly 90
percent from the same seven months of 2009, he said.
There was more interest in the Northeast carbon market last
year because the U.S. House of Representatives passed
legislation to establish a federal cap-and-trade program for
carbon dioxide and other greenhouse gases scientists have linked
to climate change, Tesoriero said. The House climate legislation
has since stalled in the U.S. Senate.
The legislation would suspend the Northeast carbon market
and convert its surplus permits into federal carbon dioxide
allowances. Speculation that state-issued pollution rights would
become more valuable if federal cap-and-trade legislation passed
Congress initially drew "financial players" such as banks and
hedge funds into the Northeast's carbon market, Tesoriero said.
"The demand from financials is gone now that the federal
climate bill has been shelved," he said.
For Related News and Information:
Top environment stories: GREEN <GO>
Stories about U.S. and climate: TNI US CLIMATE <GO>
Global emissions data: EMIS <GO>
Northeast U.S. trading: RGGI <GO>
--Editors: Richard Stubbe, Charlotte Porter.
To contact the reporter on this story:
Simon Lomax in Washington at +1-202-654-4305 or
slomax@bloomberg.net.
To contact the editor responsible for this story:
Dan Stets at +1-212-617-4403 or dstets@bloomberg.net.
