The Regional Greenhouse Gas Initiative RGGI, the largest cap-and-trade program currently in place in the U.S., is regarded as the model for where the nation may be heading on climate change policy.  However, that program is facing challenges that highlight key obstacles in implementing auction-based carbon emissions curbing programs. The “Secondary Market Report“, an independent analysis performed by Potomac Economics, notes encouraging signs of competitiveness and effectiveness in the secondary market, pointing out that the market provides firms with a way to make investment decisions in markets affected by costs of compliance within RGGI. However, Environmental Capital writes, “The biggest U.S. experiment so far in capping greenhouse-gas emissions and trading those pollution permits has run into a problem: There are more permits than needed, sending their prices plunging.” This pricing problem is similar to what Europe faced when first implementing their own program, in 2005, and it certainly is not a red flag in attempts to move forward with similar programs in the future.  This  repeated obstacle can teach a lesson to legislators as they consider national programs:  in order for a program to fulfill its goal — curbing carbon emissions by forcing firms to develop cleaner technologies, the level of compliance costs must be high enough to make a meaningful difference to the firm’s bottom line.  Issuing too many credits drives down the cost of compliance and with it the actionable incentive to curb emissions.

Despite these challenges,  J.P. Morgan’s recent bid to acquire EcoSecurities, by highlights a significant corporate interest in trading pollution credits in the United States. EcoSecurities, based in the U.K., oversees the most emissions projects overseen by the UN.  In a statement given to Bloomberg, analyst Aimie Parpia from New Energy Finance,  notes the significance of this bid saying “It looks increasingly likely that we’ll see demand for Certified Emission Reduction credits from the U.S., and JP Morgan is taking a long-term position.” Even though Waxman-Markey has been largely sidelined from the legislative agenda in Congress for the time being, JP Morgan’s bid signals the RGGI model is more likely than not to become a reality for the U.S. in the coming years.