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Over-the-counter RGGI market allowance prices stumble at month's end

Following recent strength, secondary market prices for carbon dioxide allowances under the Regional Greenhouse Gas Initiative dropped in value to conclude July. As of the week ended July 31, the August 2017 vintage 2017 RGGI contract was pegged in a bid-and-ask range of $3.60/ton to $3.85/ton. The July 2017 vintage 2017 contract ended its run on July 26 pegged between $3.60/ton and $3.85/ton.

The benchmark December 2017 vintage 2017 futures contract was assessed in a bid-and-offer spread of $3.64/ton to $3.96/ton as of July 31, down 10 cents from prior weekly assessments.

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The nine RGGI participating states are currently working to complete an extended program review, with a focus on tightening the RGGI emissions cap around 2020.

While there have been various discussions on the size of the cut to the RGGI emissions ceiling, many interested parties have said that an emissions cap reduction of about 5% per year will be necessary, to keep the participating states on course to reach their climate goals, to help alleviate the oversupply in the market and keep a platform underneath RGGI CO2 allowance prices.

As part of the current review, the RGGI states are also considering the creation of an emissions containment reserve, or ECR, after 2020. An ECR would make the emissions cap more stringent, as it would decrease supply if reduction costs are low. The ECR would automatically make such corrections when needed by holding a portion of the annual emissions allowances in reserve, restricting the sale of those allowances when prices fall below a certain predetermined level or levels. An ECR would reduce the need for future bank adjustments.

The RGGI states are Connecticut, Delaware, Maine, Massachusetts, Maryland, New Hampshire, New York, Rhode Island and Vermont. They 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 proceeds in energy efficiency projects in the residential, commercial and municipal sectors.

The nine RGGI states will hold their next quarterly allowance auction Sept. 6. The RGGI auction will offer for sale 14,371,585 carbon dioxide allowances. A reserve price of $2.15/ton will be used.

There will be a 10-million allowance cost containment reserve available for the upcoming auction. The reserve will be accessed if the interim clearing price exceeds the cost containment reserve trigger price of $10.00/ton.

In RGGI's prior quarterly auction in June, 100% of the 14,597,470 carbon dioxide allowances on offer were purchased at a clearing price of $2.53/ton. The clearing price was down 47 cents, or almost 16%, from the prior auction price of $3.00/ton in March and slumped to the lowest level in nearly five years since the RGGI December 2012 auction.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities pages.