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RGGI secondary market CO2 allowance prices head lower again

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RGGI secondary market CO2 allowance prices head lower again

Followingrecent weakness, over-the-counter prices for Regional Greenhouse Gas InitiativeCO2 allowance prices saw additional losses to conclude the month of March. Atthe secondary market, the RGGI spot allowance contract was down about 5 centsfrom the week before, pegged in a bid-and-offer range of $5.10/ton to $5.27/tonas of March 30.

TheRGGI April 2016 vintage 2016 futures contract was assessed in a bid-and-askspread of $5.04/ton to $5.30/ton. As of March 30, the benchmark December 2016vintage 2016 futures contract was pegged at a level between $5.15/ton to$5.35/ton, down 7 cents from prior weekly assessments.

Over-the-counterRGGI CO2 allowance prices have been pointed lower in the wake of the program'sfirst quarterly auctionof the year. During the sale, 100% of the more than 14.8 million allocationyear 2016 CO2 allowances on offer were purchased at a clearing price of$5.25/ton. The March auction price dropped $2.25, or 30%, from the program'sprior quarterly sale price in December2015, which was a record high at $7.50/ton.

RGGIis comprised of nine states: Connecticut, Delaware, Maine, Massachusetts,Maryland, New Hampshire, New York, Rhode Island and Vermont. The participatingstates use a market-based cap-and-trade program to reduce greenhouse gasemissions from regional power plants, selling nearly all emissions allowancesthrough auctions and investing proceeds in energy efficiency projects in theresidential, commercial and municipal sectors.

Topping$8.00/ton in January, secondary market RGGI CO2 allowance prices almost 50% in value inmid-February to between $4.00/ton and $5.00/ton following a wave of selling andliquidation triggered by the news that the U.S. Supreme Court unexpectedlygranted a stay of theU.S. Environmental Protection Agency's Clean Power Plan, effectively puttingthe rule on hold. It had been anticipated that the nine RGGI participatingstates would use the regional cap-and-trade program as a mechanism forcompliance with the Clean Power Plan.

"Priceshave done nothing but rise for the past three years, but February volatilityhas made the market re-evaluate its long term bullishness. The biggest factorinfluencing where prices will go in the future will be RGGI's decision on whatto do starting in 2018 and if they still will want to dovetail the RGGI programinto the proposed [Clean Power Plan]," according to a recent from

EvolutionMarkets said that the existing bank of RGGI CO2 allowances stands at about 135million allowances.

"Thismonth, the market experienced what happens when part of the bank getsliquidated. However, the Supreme Court decision did not change the basic marketfundamental that the allowance bank is being drawn down and eventually themarket will become tight. Depending on how fast the bank gets drawn down willdepend on actual emissions and how many CCR allowances are released intoinventory. If one assumes RGGI will maintain its current policy to reduceemissions an additional 2.5% over the 2015-2020 time period or RGGI makes evendeeper cuts to meet proposed [Clean Power Plan] standards, the allowance bankeventually will be drawn down," Evolution Markets added.

Market prices and included industrydata are current as of the time of publication and are subject to change. Formore detailed market data, including power,naturalgas, and coalindex prices, as well as forwardsand futures,visit our Commodities Pages.