Last week I wrote a briefing on the upcoming carbon credit auction, Northeast Puts on the Carbon Cap. In the article I identified a few kinks in the system that might make the Regional Greenhouse Gas Initiative less than successful in the long run. A more immediate threat, however, may be the effect the credit crisis is having on markets in general.
When I spoke with RGGI Inc. spokesman Jonathan Schrag a week before the auction, I asked whether the organization was concerned about there being too many credits for sale – the total allowance easily exceeded current emissions. Though unable to disclose just who would be taking part, Schrag was convinced that, with over 100 registered bidders, the “broad participation” would ensure success.
One week and a few collapsed banks later, that participation was no longer a given; concerns about the credit-crunch fallout on Wall Street affecting the RGGI auction seem to have borne themselves out. Although the emissions allowances sold for $3.07 – higher than the $1.86 floor price set before the auction, the prices did not reach the levels anticipated on the futures markets.
Is lackluster interest from the financials to blame? According to today’s press release 59 entities submitted bids, with “compliance entities,” the utilities that will be bound by the emissions cap, purchasing most of the credits. This differs greatly from the European emissions market, where financial companies play an active role. There, carbon trading is big business, and companies seek out creative ways of reducing or abating their emissions so they can sell their allowances for a profit. The well-functioning (since last year's reforms) market ensures emissions reductions come at the best price and with the lowest economic penalty.
The recent turmoil in the financial sector may thus have claimed yet another victim – one few have even noticed. As everyone is focused on the astronomical bailout, the falling house and stock prices, and the economic slowdown, global warming concerns are taking a back seat. Could this be yet another example of pocketbook issues trumping the environment?
Photo by Taras Kalapun (cc)