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Yesterday, the N.Y. Mercantile started auctioning mandatory carbon allowances under the Regional Greenhouse Gas Initiative. They're mandatory, that is, if you're an electric power producer, located in any of ten northeastern US states, whose generation process burns fossil fuels. (So if you're a chemical plant, or have business operations only in Alabama, or you're strictly into wind- or hydro-powered generation, your don't really care.)
Do you care if you're a northeastern university? Well, you care a little bit. All electricity delivered across the grid comes from a mix of generating sources and mechanisms. Where your campus is located is the principal determinant of what mix of mechanisms (coal, diesel, hydro, nuclear, etc.) powers your campus. (For more info, check out EPA's eGrid website.) Any power you consume, which results from burning coal or diesel fuel, is about to get more expensive.
Even if you're in the northeast, the immediate financial impact on your campus is probably small. For starts, not all the power you buy will get more expensive to generate. Around here, much of our power comes from hydro or nuclear generation; that price won't directly be affected. And even for the portion that does get more expensive, the initial increase won't be a whole lot. The clearing price from the first auction hasn't been poster at the time I'm writing this (after Monday Sept. 29, check out rggi.org), but expectations are that it will be in the area of $2.00-$3.00 a ton. That will go up over time as the number of allowances available is decreased, but it will likely go up fairly slowly -- the idea of cap-and-trade is that it encourages emitters to invest in cleaner technology, but there's a recognition that large-scale technology change takes a considerable amount of time.
For campus sustainability administrators, however, the impact is somewhat greater, and potentially shorter-term. Part of what we do is to identify and justify carbon-mitigation projects -- cost/benefit (or return on investment, or cash-flow) projections are always prominent in the justification. So, if you're trying to justify a project to add more insulation to a building which is heated electrically (let's keep it simple), you estimate the reduced electricity consumed in future years as a result of the improved insulation, and you factor that by a projection of future electric rates.
Electric rate projections, of course, generally show a rise over time. However, if you're in a RGGI state, that projected rise just got steeper. Coal-fired generators have typically been the least expensive to operate, but adding a charge for emissions (which charge is, itself, designed to rise over time) will raise the cost of coal-fired electric so that it's closer to (and could, in theory, even surpass) the cost of less troublesome forms of generation. Since future power will be more expensive, current-year projects which are designed to reduce the amount of electricity we'll need to buy at those future prices become easier to cost-justify. Which, if operating capital is available (???), should mean that more projects get approved and funded. And the snowball starts to gather momentum.
RGGI is hardly the largest or the most aggressive system in the world for creating carbon-reduction incentives. But it is the first mandatory such scheme in the USA. So, while it's a small step for some Americans, ...
