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Cap and trade programs are an effective tool to reduce GHG emissions and electricity costs, while bolstering the economy.

Published: September 23, 2019 by Editorial Team

The August 2019 Western Climate Initiative (WCI) carbon allowance auction was oversubscribed by 150%.  Although prices were not as high as the May 2019 auction, the settlement price was still $1.54 over the price floor.  Of the bidders, investor participation (defined as those not required to participate in the cap and trade program) was about the same as May 2019.  However for future allowances, about 29% of bidders were investors– a 14% increase over May’s results. We see increasing investor participation as a positive sign that cap and trade is gaining strength.

As we digest the data from WCI’s 20th auction, it is worth mentioning two recent reports that assess the broader positive results of cap and trade programs.  Currently there are two cap and trade programs in the US – California’s (WCI) and the northeastern states’ Regional Greenhouse Gas Initiative (RGGI).  These reports assess the effectiveness of the programs, not just in terms of greenhouse gas reductions, but in larger contexts – economic development, electricity costs, and funds available for renewable energy.  The news is good.

First, RGGI. An August 2019 Acadia Center report that reviewed the past 10 years of the program finds the following:

  • CO2 emissions from RGGI power plants fell by 47%
  • Electricity prices in RGGI states fell by 5.7%, while prices have increased in the rest of the country by 8.6%
  • GDP in RGGI states grew by 47%, outpacing growth in rest of the country by 31%
  • RGGI states have generated $3.2 billion in allowance auction proceeds, the majority of which have been invested in energy efficiency and renewable energy programs

For California’s program an August 2019 release by Governor Newsom’s office offered this assessment:

  • 2017 emissions decreased by 14% since peak levels in 2004
  • GHG emissions fell below the 2020 reduction target for the second year in a row
  • California’s economy grew by 3.6 % – 1.4 % above the national average

So, despite an increase in population, California’s total GHG emissions decreased, while its economy improved.  In addition, over its lifetime, California’s cap and trade program has generated $11 billion in proceeds to support programs that reduce GHGs and promote energy efficiency.

As cap and trade programs mature, it becomes abundantly clear they are an effective way of addressing climate change and refute the notion that they are a drag on the economy or that they leave out broad segments of the population.  When electricity prices drop, when the air is cleaner and when employment increases, that’s good for everyone, not just corporations as some suggest.   Cap and trade is an effective tool – not a panacea – in the fight against climate change.  Other states, like Pennsylvania and New Mexico, and some presidential candidates are paying attention.  Let’s hope more do.