Watch For RGGI Carbon Market To Be Oversupplied In 09

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Carbon dioxide emissions from the 10 states participating in the Regional Greenhouse Gas Initiative (RGGI) fell by 8.9% in 2008, as compared to 2007, according a report from carbon market firm Point Carbon.

Using data from the EPA, Point Carbon estimates that RGGI participants emitted 156.2 million short tons (one short ton is equal to 0.91 metric tons.) This means if emissions hold steady in 09, then RGGI will offer 31.8 million in excess carbon allowances this year. There’s a chance emissions will fall in 2009, meaning there will be an even greater amount of oversupply.

With an oversupply of credits, the price of carbon will continue falling. Some producers are pressing for free credits in New York right now. If they get those credits for free, as opposed to an auction, then turn around and sell them, it would amount to revenue for doing nothing. That only works if emissions are falling and the credits are unnecessary.

Emissions are dropping because we are in a recession and high oil prices last year forced businesses to find alternative sources of energy. Some of those sources are cleaner, like natural gas. Point Carbon also speculates that years of efficiency programs are now paying off in the form of lower energy costs.

The 10 states that participate in RGGI are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. It is the first mandatory, market-based effort in the United States to reduce greenhouse gas emissions.

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