Thank you for commenting! I believe you’re saying that the cap could be large enough that there’s excess allowances, so retiring one doesn’t affect polluters’ emissions.
The market price of allowances reflects whether the cap is binding or not. An allowance that polluters don’t plan to use is worthless. If polluters did not plan to use them all, their market price would have to be near zero, as was the case in the EU ETS in 2007 (~$0.10/allowance) or in the Acid Rain Program today ($0.01/allowance in the 2025 auction).
For RGGI, a question is: do power plants plan to use all allowances given that they were willing to buy every last one for $20 in the last auction? I would think so.
Thank you for commenting! I believe you’re saying that the cap could be large enough that there’s excess allowances, so retiring one doesn’t affect polluters’ emissions.
The market price of allowances reflects whether the cap is binding or not. An allowance that polluters don’t plan to use is worthless. If polluters did not plan to use them all, their market price would have to be near zero, as was the case in the EU ETS in 2007 (~$0.10/allowance) or in the Acid Rain Program today ($0.01/allowance in the 2025 auction).
For RGGI, a question is: do power plants plan to use all allowances given that they were willing to buy every last one for $20 in the last auction? I would think so.