Maryland Proposes 90% Auction Of CO2 Allowances
Published October 16th, 2007
Maryland has proposed auctioning 90% of carbon dioxide allowances to the state’s power plants under the Regional Greenhouse Gas Initiative, an agreement among 10 Northeastern states to limit global warming emissions from the power sector.
An auction would add at least tens of millions of dollars in annual costs to the balance sheets of Constellation Energy Group Inc. (CEG) and Mirant Corp. ( MIR), the state’s two largest power plant owners. The two companies would be forced to buy most of the allowances needed to offset emissions from their large coal-burning power plants, instead of getting them for free from the government.
Maryland said it would consider a lower auction level if “additional analyses or public comments clearly demonstrate that a phased auction process is needed to ensure that the auction process will not lead to concerns over reliability or to increase cost to consumers,” according to a draft of the proposal released last week by the Maryland Department of the Environment.
“We put that in at the last minute to get some feedback,” said Brian Hug, an air quality program manager at the department.
The department is holding a meeting Monday for the public to discuss its proposal.
The RGGI trading program comes into force beginning in 2009. The power sector in participating Northeastern states will be held to an overall cap, but companies can emit more or less through the purchase and sale of emissions allowances. The RGGI cap will keep emissions at roughly current levels between 2009 and 2015. Then the cap will fall 10% over the next four years until 2019.
Existing power plants would actually have to buy all of their allowances under Maryland’s proposal. The remaining 10% of allowances not auctioned would be set aside for new power plants and a few other purposes established by the department.
Maryland, unlike other states that participate in RGGI, relies on coal to generate the majority of its electricity. Burning coal produces twice the carbon dioxide, the main global warming gas, as burning natural gas.
Mirant and Constellation own thousands of megawatts of coal-burning generation in Maryland. Mirant’s plants produced 15 million tons of carbon dioxide in 2006, and Constellation’s plants emitted 13 million tons, according to data from the U.S. Environmental Protection Agency.
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