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Offsets ‘a better guide’ than RGGI for US carbon prices

20 May, 2009

Voluntary carbon offset prices are a better indicator of potential prices in a US federal cap-and-trade regime than the current north-east regional programme, according to Harold Buchanan, managing partner at environmental investment manager CE2 Capital Partners.

While the Regional Greenhouse Gas Initiative (RGGI), a greenhouse gas regime covering utilities 10 north-eastern states, can be seen as a model for a future federal programme, it is “useless” as a predictor of the price for federal carbon allowances because of a weak market design and regulatory issues, Buchanan told a Carbon Finance webinar this afternoon.

There is no fundamental support for current RGGI allowance prices – around $3.30-3.40 for the 2009 vintage – as the market is “grossly oversupplied” and there are no incentives to invest in offset or emission reduction projects. This makes it easier for emitters to just buy allowances, he said.

Moreover, the draft Waxman-Markey legislation for a federal programme currently only allows holders of RGGI credits to transfer them into a federal scheme on a dollar-for-dollar basis, not credit-for-credit, he said. This turns RGGI into “a savings account with no interest”, Buchanan said.

Voluntary offset prices are better price indicators, he said, as pre-compliance standards and protocols will eventually converge into a federal programme.

Offset prices largely depend on the standard to which they were verified, and the Climate Action Registry (CAR) credits are currently the most highly valued in the market, at around $5-7 apiece.

“CAR is where we are all looking for indications of a federal market,” Buchanan said, but noted that there are risks that this will change as the legislation works its way through Congress.

To find out more about the future of the US carbon market, don’t miss Carbon Finance North America 2009

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