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Northeast secondary market carbon prices turn higher after recent auction

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Northeast secondary market carbon prices turn higher after recent auction

Following a recent retreat, secondary market prices for Regional Greenhouse Gas Initiative CO2 allowances moved higher during the week ended Sept. 16.

Broker data showed the September 2019 vintage 2019 contract in a bid-and-ask range of $5.25/ton to $5.34/ton, up 7 cents from Sept. 3 assessments. As of Sept. 16, the benchmark December 2019 vintage 2019 contract was marked in a bid-and-offer spread of $5.30/ton to $5.39/ton, also gaining 7 cents from Sept. 3.

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According to the results of the RGGI's latest auction released Sept. 6, 100% of the more than 13 million RGGI CO2 allowances on offer sold at $5.20/ton, down 42 cents from the prior auction price in June and the lowest level in a year.

During a Sept. 12 webinar, Mason Anderson, senior analyst for North America at ICIS, said investors, who are more sensitive to price changes, were less active in the September RGGI auction after prices in the June sale spiked to $5.62/ton, the highest level since the program's December 2015 auction.

According to ICIS calculations, RGGI's allowance demand for this year is pegged at 64.8 million allowances, with supply eyed at 55.7 million allowances. This could leave a shortage of 9.1 million RGGI allowances, Anderson said. However, there are a lot of allowances still in the market. The analyst believes that the 2019 cumulative bank of allowances will come in at 93.7 million.

The nine participating states are Connecticut, Delaware, Maine, Massachusetts, Maryland, New Hampshire, New York, Rhode Island and Vermont. These states use a market-based cap-and-trade program to reduce greenhouse gas emissions from regional power plants, selling nearly all emissions allowances through auctions and investing the proceeds in ways that vary state by state.

More speculators are expected to engage in the RGGI market as the program's membership expands in the coming months, said Sunny Roe, ICIS market editor for North America, pointing to the relinkage of New Jersey to the RGGI starting in 2020.

The New Jersey RGGI cap for 2020 is set at 18 million tons. The state's emissions level in 2018 was 19 million tons, with projections for 2020 emissions levels just below the cap at about 17.9 million tons.

In 2020, founding member New Jersey will rejoin the RGGI. In June, the New Jersey Department of Environmental Protection formally adopted two rules to allow the state to return. One of the rules establishes the mechanisms for rejoining RGGI and sets the initial carbon dioxide cap for the state's electricity generation sector. The other rule establishes the framework for how New Jersey will spend the proceeds from the RGGI allowance auctions.

With its return, New Jersey will be allowed to take part in the March 2020 RGGI auction. New Jersey was part of the RGGI when the program was created in 2005, but former Republican Gov. Chris Christie withdrew the state in 2012.

Additionally, Pennsylvania Gov. Tom Wolf has reportedly requested that the state Legislature begin looking at the necessary steps to authorize the state to join the RGGI. Also, officials in North Carolina are assessing a possible linkage to the RGGI.

Meanwhile, the earliest that Virginia could link to the RGGI program would be 2021, Roe said. Lawmakers have delayed efforts that would allow Virginia to join the RGGI by including language in the state's budget bill that prohibited membership in the RGGI without General Assembly approval. The language also restricted the state's use of appropriated funds to support membership or participation in any climate change compacts.

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