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RGGI CO2 allowance secondary market futures prices rally 49% from Q2 to Q3

At the secondary market, Regional Greenhouse Gas Initiative CO2 allowances futures prices posted an average of $4.12/ton in the third quarter, surging about 49% on the quarter but down 12% from the same quarter in 2016, according to a quarterly report released by independent market monitor Potomac Economics.

RGGI CO2 allowance prices were volatile in the third quarter, initially pegged near $3.50/ton in July and declining during the first half of August before rallying at month's end to almost $4.50/ton after the participating states announced proposed program changes.

Among other things, the changes include a cut to the RGGI emissions ceiling by an additional 30% by 2030, relative to 2020 levels. The RGGI cap would decline by 2,275,000 tons of CO2 per year from 2021 through 2030, yielding a total reduction of 22,750,000 tons of CO2, or 30%, of the 2020 cap.

Additionally, the RGGI states have proposed the use of an emissions containment reserve, or ECR, after 2020. The participating states implementing the ECR will withhold up to 10% of the allowances in their base budgets each year. The ECR trigger price will be $6.00/ton in 2021 and will rise at 7% per year. RGGI said that at this time, Maine and New Hampshire do not intend to implement an ECR.

While prices rose in the third quarter, secondary market trading activity also increased during the three months. Volumes for RGGI futures contracts listed on the Intercontinental Exchange Inc. were 46.7 million in the third quarter, up more than 50% on the quarter and about 75% higher on the year.

During the third quarter, the total volume of RGGI CO2 allowance transfers between unaffiliated firms was 6.4 million, down 28% from the same quarter in 2016.

At the end of the third quarter of the year, there were 241 million CO2 allowances in circulation. Compliance-oriented entities held approximately 132 million, or 55%, of the allowances in circulation. Roughly 135 million, or 56%, of the allowances in circulation are believed to be held for compliance purposes, the report said.

RGGI requires a regulated power plant to hold CO2 allowances equal to its emissions to demonstrate compliance for each three-year control period. RGGI is compossed of nine states: Connecticut, Delaware, Maine, Massachusetts, Maryland, New Hampshire, New York, Rhode Island and Vermont.

The RGGI participating 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 proceeds in energy efficiency projects in the residential, commercial and municipal sectors.