The RGGI auction for carbon dioxide emissions allowances last week produced a cost of carbon dioxide of $3.07 per allowance. Each allowance allows a regulated source to emit one (1) ton of CO2. Therefore, as we all fondly remember from high school algebra, the transitive property of equality allows me to state with scientific authority that CO2 in RGGI states now has a cost of $3.07 per ton.
Yet, what impact will this have on the commercial real estate market? There is no direct effect on the commercial real estate professional. RGGI only regulates the electric power generation sector. Specifically, regulated units are “fossil fuel fired electric generating units serving a generator of 25 MW or larger”.
So, as a property owner or manager in the Northeast, you do not need to worry about any direct effect. The potential indirect effect comes from an increase in the cost of electric power. However, the price that was set for carbon dioxide in this auction, $3.07/ton, does not suggest that an increase in electric rates will be seen in the near future. Check out this article analyzing the potential effect of RGGI. However, this is an important development economically and is something that the commercial real estate professional must keep on their radar over the coming years.
