With growing Carbon emissions polluting the atmosphere, the U.S. has decided that something more must be done. Even the presidential candidates, McCain and Obama, realize this and endorse a cap-and-trade system to allow only a certain amount of greenhouse gas to be produced annually. In this system, companies would be allowed to buy permits to generate a certain quantity of pollution. By issuing only a certain number of permits each year, greenhouse gas emissions could be “capped”, or limited.
Capitalizing on this idea, the U.S. held its first Carbon auction online on 25 September 2008. Organized by the Regional Greenhouse Gas Initiative (RGGI), the auction raised over $38.5 million from 59 bidders who bought 12.5 million permits. Through this method, these companies paid for the right to pollute a certain amount. In fact, they paid $3.07 for each ton of carbon dioxide they expect to produce. The auction did so well, it is being considered as a permanent fixture in a federal auction program. RGGI is hoping that a yearly auction of this sort would help reduce pollution by 10% over the next 10 years by selling fewer permits each year, forcing advances in cleaner energy. Such advances will be encouraged even more if the price of the permits, and thus polluting, increases each year, as is probable.
An auction of this sort does several things. First, it requires companies to pay, up front, for the pollution they anticipate producing in the coming year. This raises millions in revenue for the companies’ respective states. In this case, the money went to the six states that put permits in the auction. This money can now be used to develop more efficient sources of energy. Second, if these companies produce more pollution than allowed by their permit, they are fined. This too, could go toward a general state fund for cleaner energy. Third, it incentivizes research for clean energy in these companies themselves. If a company can become more energy efficient and release less greenhouse gas, it will need fewer permits, which will save money. Also, it will allow companies to sell their remaining, unnecessary permits to other companies which may be in dire need for them. This would not only save money in the future, but it would also generate income for that company for the current year.
While this method hasn’t worked perfectly for the European Union since 2005, they did not require companies to buy permits, but rather simply gave them out. Since it is money and profits which drives companies, it is unsurprising that such a technique was less than efficient at reducing pollution or increasing concern for more efficient energy sources. Since the U.S. auction required companies to buy enough permits for the next three years, it gave a firm economic nudge for the companies to begin using more efficient energy methods. Massachusetts Governor Deval Patrick said in a statement, “We will use these funds to help municipalities find greener solutions to their energy challenges, and help consumers reduce their energy bill.” It can only be hoped that every state will soon make this their war cry against increasing energy prices and greenhouse gas pollution.