United States: Market for Carbon Allowances Remains Anemic

The Climate Report - Winter 2011

At the close of trading on September 22, 2010, prices for a credit representing avoidance of one metric ton of carbon dioxide equivalent emissions in December 2010 was as follows:

A combination of factors—the lack of a mandatory nationwide cap and trade system in the United States, the ongoing economic recession, and emission reduction goals that have been achievable without the need for allowances or offsets—continue to depress the price of carbon allowances.

Decreasing demand resulted in the announcement in October that the Chicago Climate Exchange, known as CCX, would end its program for trading greenhouse gas emission allowances at the end of 2010 and become solely a registry for offset emission credits. CCX was launched in 2003 as a voluntary "pilot" carbon emission trading market for carbon emission allowances, called Carbon Financial Instruments, each of which represented the elimination of one metric ton of greenhouse gas emissions.

The market value of CCX carbon allowances peaked in the fall of 2008 at approximately $7 per ton, but by the fall of 2009, the allowances had dropped to approximately 10 cents per ton. By fall 2010, the allowances were virtually worthless and trades were becoming few and far between. In August 2010, no allowances were traded and only 10,200 tons were sold in September. Without viable buyers, the cost of running the exchange was no longer warranted. CCX's registry and trading services will, however, remain available through the middle of 2011 for existing emission allowance contracts. With its new focus exclusively on offset projects, CCX plans a new offset registry program in 2011 and 2012, which will include a publicly available registry and a transfer mechanism to process trades.

The economic climate has also affected the RGGI. Only 57 percent of the carbon allowances offered for sale during RGGI's most recent auction on December 1, 2010 were sold for the minimum reserve price of $1.86. The previous auction, in September 2010, sold only 75 percent of available allowances. Decreasing allowance prices over the past several RGGI auctions have been attributed to decreased electricity demand, utilities' increased use of alternative fuels such as natural gas, and utilities' increased use of alternative technologies, such as nuclear, wind, and hydroelectric power.

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