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Speculators and Government are Costing you Money

In 2013 new rules were announced for carbon permit auctions held by the nine-state Regional Greenhouse Gas Initiative greatly reducing the number of permits available. The number of available permits dropped from 147 million in 2012 to 78 million in 2014, about the number needed by electric generators to meet their expected emissions. However, speculators entered the market attempting to buy permits for resale at a higher price driving demand up to 215 million permits in 2014. This imbalance in supply versus demand raised prices from $1.93/ton in 2012 to $4.73/ton in 2014.
With demand far exceeding supply how were prices determined? To protect electric customers cost caps were established in the new rules escalating from $4/ton in 2014 to $6 in 2015, $8 in 2016, and $10 in 2017, and rising 2.5%/year thereafter. The chart below shows how prices are rising in the quarterly auctions in direct relation to the cost caps. Basically, the RGGI states are setting auction prices.
This has implications in forecasting future prices of carbon permits and the impact on electric bills. When the price cap hits $10/ton in 2017 we can expect carbon permits to cost at least that much. In Delaware, the cost to electric customers will rise from $5.8 million in 2012 to at least $43 million in 2017. Residential customers will see costs rise from about $6/year to about $44/year. But, the largest industrial customers could see cost rise from $125,000 a year to a job-killing $1 million a year.
The bottom line: the government-induced distortion in an already distorted 'marketplace' will raise your electric bill to a higher dollar amount than you're already paying. And it won't be a tiny amount either.
Click the link below for the RGGI Quarterly Clearing price and Delaware RGGI revenue by year

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