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RGGI secondary market prices extend higher ahead of June auction

Secondary market prices for Regional Greenhouse Gas Initiative carbon dioxide allowances continued to advance during the week ended May 16, with gains driven by ongoing buying ahead of the program's next quarterly auction.

As of May 16, the May 2019 vintage 2019 RGGI contract was pegged in a bid-and-offer range of $5.59/ton to $5.76/ton, up 10 cents from April 26. The benchmark December 2019 vintage 2019 contract was seen in a bid-and-ask spread of $5.80/ton to $5.89/ton, increasing 11 cents from assessments made April 26.

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Over-the-counter RGGI CO2 allowance prices continued to climb at midmonth in front of RGGI's next quarterly auction to be held June 5. At the sale, the nine RGGI participating states will offer for sale 13.2 million allowances. The offering will be composed of allocation year 2019 CO2 allowances as well as 13,222 allocation year 2017 allowances, 274,735 allocation year 2018 allowances and 47,855 allocation year 2019 allowances from state set-aside accounts.

The cost containment reserve, a fixed additional supply of allowances only available if prices exceed certain levels, will be available in the coming auction. This year's level is $10.51/ton and increases 2.5% through 2020 to account for inflation.

At the program's previous auction of the year in March, 100% of the almost 12.9 million allowances on offer sold at a clearing price of $5.27/ton, down 8 cents from the December 2018 auction price. The March RGGI auction netted almost $68 million for the participating states.

In the first quarter of the year, trading volume for RGGI futures contracts in the secondary market decreased a sharp 61% from the final quarter of 2018, according to RGGI's latest quarterly market report. RGGI futures trading volume totaled 31.2 million allowances in the first quarter.

"This pattern is typical because the benchmark RGGI futures contract settles at the end of December each year," the report said.

The RGGI program is made up of Connecticut, Delaware, Maine, Massachusetts, Maryland, New Hampshire, New York, Rhode Island and Vermont. The nine 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.

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