Low energy demand and uncertainty about the Federal Cap & Trade program contributed to an all time low for CO2 emissions permits in the Eastern US Regional Cap & Trade market.  CO2 "permits" or "allowances" sold for $1.88 a ton in the most recent Regional Greenhouse Gas Initiative's quarterly auction.  This price reflects a $0.19 decline from March 2010's auction, and $1.63 decline from March 2009.

The RGGI is the first mandatory, market-based CO₂ emissions reduction program in the United States.  Ten Northeast and Mid-Atlantic states* joined the RGGI with the goal of reducing their power sector carbon emissions 10% by 2018.  It is basically a regional "Cap & Trade" program.  Since the start of their pre-compliance period starting in September of 2008, they have sold 244,771,306 allowances for a total of $662,844,619.72 .  As you can see in the chart above, prices hit their high point in March of 2009.  That was also the first auction after the official start of the program in January of '09.  Prices have consistently trended downward since then, hitting an all-time low last week.

Experts cite the reduction in energy consumption caused by the recession as the primary cause of the declining prices.  As the economy slowed down, so did energy consumption and consequently emissions.  Their targeted cap of 188 million short tons of CO2 per year, set in 2005 about 4% above the national average, reflected the expectation that CO2 emissions would naturally continue to rise.  What ended up happening instead was a decline caused by the slowing economy.  This resulted in a surplus of CO2 Allowances combined and declining demand.

Experts also cite the uncertainty around how the potential federal Cap & Trade legislation will affect the regional market.  Originally the prospect of a federal Cap & Trade program brought investors to the carbon market, including Banks and hedge funds that were anticipating that the regional credits would be converted into federal allowances once climate legislation passed.  This could possibly account for the relatively high prices the allowances were fetching in late 2008 and early 2009.

The narrow passage in the house and stall in the Senate brought real uncertainty to the market.  This was compounded by the concern is that the current energy bill iteration that proposes weaker targets than the RGGI,  will either force RGGI to water down their standards, further diluting the value of current allowances or not recognize the regional allowances at all.

It is important to note that the declining prices do not represent a failure of the program.  Instead they demonstrate the affects of speculation on the market and a new market seeking it's natural price points.

* The ten states participating in RGGI -- Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont