RGGI – Results from the first U.S. cap-and-trade GHG permit auction

Michael Giberson

The results from the first RGGI auction have been announced, coming in louder than a whimper, but softer than a bang. As the WSJ Environmental Capital blog reports, “Demand was actually pretty strong.” About 50 million units were bid upon, while just 12.5 million were offered. The demand pushed the clearing price to $3.07 a ton, higher than the $1.86 a ton minimum bid.

From the RGGI results page:

Auction
Number
 
Auction
Format
Allocation
Year
Quantity
Offered
Quantity
Sold
Clearing
Price
  Reports
CO2 Allowance
Auction  1
9/25/2008
 
Sealed
Bid,
Uniform Price
2009 12,565,387 12,565,387 $3.07   PDF
CO2 Allowance
Auction 2.1
12/17/2008
 
TBD 2009 TBD TBD TBD  
COAllowance
Auction 2.2
12/17/2008
 
TBD 2012 TBD TBD TBD  

The market monitor reported, “We observed the auction as it occurred and have completed our review and analysis of its results. Based on our monitoring of participant conduct in the auction, we find no material evidence of collusion or manipulation by bidders.”

As Environmental Capital notes, the $3.07 a ton price is substantially lower than prices in Europe, but as we noted here last week, “I can imagine that the program designers were interested in not beginning with a bang.”

Love and money – another west Texas wind energy story

Michael Giberson

“We used to curse the wind,” Max Watt said. “Now we love it.”

The aptly named Max Watt is a Nolan County, Texas landowner benefiting from the wind energy boom. The quote is from a Reuters story describing how the boom in wind farm construction in west Texas has led to a boom in school facility construction. More: “It’s the greatest thing that has happened here,” said James Bible, superintendent of the Blackwell Consolidated Independent School District, where the shell of a new school is rising, financed mainly by tax revenue from windmills. “It’s like day and night for the school districts.”

[HT to WSJ's Environmental Capital]

Gasoline is available in Lubbock at $3.35/Gal.

Michael Giberson

Yes, Texas has a price gouging law, and yes the Attorney General recently has issued a press release warning against price gouging – actually multiple press releases (Sept 16, Sept 19, Sept 24; a second press release of Sept 16 noted that state hotel tax collections were suspended for persons displaced by Hurricane Ike through October 14.) From the Sept 24 release:

Although Hurricane Ike has left the state, the governor’s disaster declarations are still active, so the OAG continues to have enforcement authority to pursue price gouging complaints. Under Texas law, vendors are prohibited from charging exorbitant prices for necessities such as groceries, clothing, medical supplies, lodging, repair work and fuel during and after declared disasters.

Although state law prohibits vendors from illegally raising prices to reap exorbitant profits during a disaster, it does allow retailers to pass along wholesale price increases to customers. Thus, in some cases, increased prices may not necessarily signal illegal price gouging.

The AG’s office also announced a price gouging case against a hotel operator for price increases during Hurricane Dolly in July of this year.

Nonetheless, at least in West Texas the gasoline seemed barely affected by the market disruption. There was a brief interruption of declining gasoline prices – from early September prices around $3.50/gal. prices jumped back over $3.60/gal. after Ike hit the coast, but this weekend I filled up at $3.35/gal.*

Gasoline price 3-359 in Lubbock - Sept 27.JPG

No shortage, no lines, no short tempers.

Another news story suggests the actual positive contributions possible from state government involvement in gasoline markets. Individual wholesalers and retailers might have a hard time coordinating the described emergency planning activities without running afoul of antitrust laws, but working in concert with government emergency planning groups seemed to produce good results.

(*I took a picture of the price with my camera phone to share with you all, but you can’t quite see the price in the photo. You’ll have to take my word for it.

As per standard consumer practice, I’ve ignored the $0.009 part of the price to report the price in whole cents.)

Neil Netanel’s “Copyright’s Paradox”

Lynne Kiesling

Cory Doctorow at Boing Boing alerts us to a new book on copyright by Neil Netanel, Copyright’s Paradox. I haven’t read it yet, but I trust Cory’s recommendations, and pass them on to you without further comment as I put it on my “to read” list. Note also that many of the comments on Cory’s Boing Boing post are worth a read too.

More definitive evidence that property rights improve fishing yields and sustainability

Lynne Kiesling

I’ve been enjoying this new research from environmental economist Chris Costello and his two co-authors, Steven Gaines and John Lynham: “Can Catch Shares Prevent Fisheries Collapse?”:

Recent reports suggest that most of the world’s commercial fisheries could collapse within decades. Although poor fisheries governance is often implicated, evaluation of solutions remains rare. Bioeconomic theory and case studies suggest that rights-based catch shares can provide individual incentives for sustainable harvest that is less prone to collapse. To test whether catch-share fishery reforms achieve these hypothetical benefits, we have compiled a global database of fisheries institutions and catch statistics in 11,135 fisheries from 1950 to 2003. Implementation of catch shares halts, and even reverses, the global trend toward widespread collapse. Institutional change has the potential for greatly altering the future of global fisheries.

This is a wonderful result for a whole host of reasons — good for fish, good for fishers, good for fish consumers, good for the interactions in the fish ecosystem, good for fishery policy, good for economists who argue that institutions matter and that effective institutions for common-pool resource governance can lead to superior outcomes.

At Aguanomics, David Zetland provided more thoughtful and insightful analysis and commentary than I’ve been able to pull together this week, as well as links to the Economist article and the New York Times article on the research.

See also Ben Muse’s post with useful links and a valuable reminder that the primary sustainability driver that comes from better-defined property rights is that it makes the fishers more interested in long-term outcomes.

First RGGI auction today, results to be posted Monday

Michael Giberson

The Regional Greenhouse Gas Initiative held their first CO2 permit auction today. At the WSJ Environmental Capital blog, Keith Johnson said RGGI “is more likely to start with a whimper than a bang,” and asks “Will it work?”

Johnson reports:

RGGI’s first auction today, of about 12.5 million emissions permits, isn’t attracting a lot of interest. For starters, that’s because the program’s overseers allocated more pollution permits than power companies need to meet their obligations. That means there’s no red-hot demand to get permits. At the same time, utilities have three years to start really tightening their belts, so there isn’t a lot of urgency to get emissions credits in the bank.

I can imagine the the program designers were interested in not beginning with a bang. After all, if you toss industry into a pot of boiling water, it will hop right out.

Supply problem + price gouging law = rationing gas by running out

Michael Giberson

Robert Rapier at R-Squared Energy Blog noticed the EIA showing gasoline inventories at their lowest levels since 1967, and because consumption rates are higher now than in 1967, he pointed out that “days of supply” in inventory is probably at its lowest level ever. Rapier comments:

Someone asked during a panel discussion at ASPO whether we were going to have rationing by price. I answered that we are having that now. But prices aren’t going up nearly as much as you would expect during these sorts of severe shortages. Why? I think it’s a fear that dealers have of being prosecuted for gouging. So, they keep prices where they are, and they simply run out of fuel when the deliveries don’t arrive on time. If they were allowed to raise prices sharply, people would cut back on their driving and supplies would be stretched further.

Rapier quotes favorably this explanation by Gary North:

Instead of raising prices, in an attempt to reduce demand for gasoline, thereby allocating gasoline that was in short supply by means of price, station managers simply let people fill up their tanks until the pumps were empty. Anyone who wanted gasoline after that was out of luck.

This is rationing by lining up. It is the alternative to rationing by price. Rationing by lining up creates no financial incentive for suppliers of the item in short supply to allocate new supplies to the region of the country which is experiencing a shortage. Instead, delivery schedules remain the same as they did prior to the shortage. This continues the shortage.

Whenever there are complaints about price gouging during a period of a shortage, sellers get the message. The next time there is a shortage, they hesitate to raise prices. They shift to the other allocation system: first come, first served.

UPDATE: iReport.com offers the following image of a Circle K sign in North Augusta SC with no prices listed for gasoline. The contributor comments, “Places are still out of gas, waiting on more shipments. Either the gas is too high or there is none to buy.”

<object width=”450″ height=”340″

Note that the South Carolina Attorney General invoked the state’s price gouging law as of noon on September 12, 2008. Typically state price gouging laws require the governor to declare an emergency in the state. South Carolina’s law allows the Attorney General to invoke the law when the President declares an emergency in another state, and the emergency presents an “abnormal disruption of the market” that affects the market in South Carolina. President Bush had declared a state of emergency for Texas and Louisiana on the previous evening.

Good summaries to help understand the financial turmoil

Lynne Kiesling

Last week at Freakonomics, Doug Diamond and Anil Kashyap had a great guest post to help put it in perspective, and I recommend it to all.

Yesterday Steve posted a link to a critique of Paulson’s bailout plan by Luis Zingales. A must read. His conclusion:

Do we want to live in a system where profits are private, but losses are
socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live
in a system where people are held responsible for their decisions, where imprudent
behavior is penalized and prudent behavior rewarded? For somebody like me who
believes strongly in the free market system, the most serious risk of the current situation
is that the interest of few financiers will undermine the fundamental workings of the
capitalist system. The time has come to save capitalism from the capitalists.

This “saving capitalism from the capitalists” meme echoes the ideas in Steve Horwitz’s post from yesterday in which he criticizes policy that focuses on creating “market stability”; this stability is always in the interest of the market participants, but when administratively imposed may come at a great cost to others, in this case taxpayers.

Finally, I’m glad that Tyler Cowen has been discussing OTC versus exchange trading and credit default swaps, despite his failure to note my contribution to starting the discussion rolling :-). Craig Pirrong from Streetwise Professor weighs in on the OTC post in the comments, and the whole thread is well worth a read.

Financial upheaval and the energy industry

Lynne Kiesling

One of the consequences of the current financial market upheaval is MidAmerican’s buyout of Constellation Energy. See also the discussion at WSJ’s Environmental Capital of this and other possible consequences for energy industries.

Keith Johnson at WSJ also thinks that this move shows an interest on Warren Buffet’s part in nuclear assets.

Electricité de France has bid, and rebid in the face of rejection, for Constellation, arguing that the MidAmerican bid is too low. However, Constellation is not going for it, in part because of the increased national security scrutiny that would accompany foreign ownership of nuclear power plants.

We live in interesting times …