Maine has collected $15M in sale of pollution credits

Posted Dec. 07, 2009, at 9:20 p.m.

AUGUSTA, Maine — As momentum builds in Washington, D.C., for federal regulation of greenhouse gases, Maine is preparing to dole out millions of dollars in grants collected as part of the nation’s first regional “carbon market.”

Maine has collected more than $15 million so far from the sale of pollution “credits” under the 10-state cap-and-trade system intended to reduce industrial emissions of carbon dioxide. The most recent Regional Greenhouse Gas Initiative auction, held last week, garnered $61.6 million, including $1.7 million for energy conservation projects in Maine.

But the price of those credits is falling, underscoring the unpredictability of a new market heavily influenced by the economy, energy trends and political machinations on the issue of climate change.

“It’s a market and in a market, you don’t control the price,” said David Littell, commissioner of the Maine Department of Environmental Protection. “The market dictates the price.”

The Regional Greenhouse Gas Initiative, or RGGI, is a cap-and-trade system in which fossil fuel-burning power plants are required to purchase carbon credits or allowances for each ton of carbon dioxide they emit. Participating states pledged to reduce CO2 emissions by 10 percent over the next decade.

By putting a price on carbon dioxide, the program aims to give larger power plants a financial incentive to reduce emissions of the primary greenhouse gas linked to human-caused global warming. Proceeds from the “carbon market” then flow to the states.

In Maine, the vast majority of all RGGI proceeds go toward electricity conservation projects, although there is discussion in Augusta for allowing more of the money to go toward reducing use of heating oil and other fossil fuels.

About $6 million of the $15 million already has been transferred to Efficiency Maine, the Public Utilities Commission’s program for residential energy conservation programs.

Between $4 million and $7 million will be combined with $6.3 million in federal stimulus dollars for grants to “large energy customers,” such as schools and industrial manufacturers that are competing for the funds. The group responsible for divvying up that pool has received $30 million worth of requests. Final selections could be made early next month.

“We won’t be able to fund all of them, but we will be able to fund a substantial number of projects,” said Tom Tietenberg, a member of the Energy and Carbon Savings Trust. Tietenberg said he is “enthusiastic” about the quality of the projects that he has seen.

Some observers have been critical of how long it has taken to get the RGGI money to groups that need it.

Tony Buxton, an attorney representing the Industrial Energy Consumer Group, said he believes the review process has lacked a sense of urgency. Buxton, whose clients include several of the state’s major mills, said that is disappointing considering that the grants could help mills substantially reduce energy use — and therefore carbon dioxide emissions — while putting people to work on the projects during a recession.

“If this is as rapidly as state government can act, what would happen if it were a real emergency?” Buxton asked.

The Obama administration’s announcement on Monday designating carbon dioxide and other greenhouse gases as potential health threats is the first step toward possible federal regulations emanating from the Environmental Protection Agency.

But the announcement was apparently intended more to prod Congress into action on adopting federal greenhouse gas regulations as well as to send a signal to this week’s international climate change conference in Copenhagen about U.S. resolve on the issue.

The DEP’s Littell, who also serves as chairman of the RGGI board of directors, said Maine officials are supportive of the EPA decision although the state would prefer passage of federal legislation. Maine and other states had sued the EPA under the Bush administration for failing to regulate greenhouse gases.

Meanwhile, the fact that more than 100 bidders have participated in RGGI proves that a cap-and-trade carbon market works, Littell said.

So far, the six auctions have generated nearly $500 million for the 10 states. But the price paid for the more than 28 million allowances sold last Wednesday dropped to $2.05 per ton — the lowest yet and well below the high of $3.51 per ton. The floor price has been set at $1.86 for each allowance, which equals 1 ton.

The per-allowance price drop has been largely attributed to declining energy use due to the recession and a shift toward cleaner-burning and lower-priced natural gas.

But in the new realm of carbon cap-and-trade systems, political uncertainty can drive the price of carbon allowances as much as supply and demand, according to Emilie Mazzacurati, manager of North American carbon market research at Point Carbon, an international firm that monitors and analyzes the burgeoning market.

Right now, there is a glut of allowances because regulated power plants in RGGI are already emitting less than planned. But talk of a federal system has likely kept the market prices for allowances from falling even lower.

“It is definitely following the overall trend that we expected, and that is the prices have constantly been going down over the past few months,” Mazzacurati said.

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