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OTC RGGI CO2 allowance prices stumble into 2nd half of September

Secondarymarket prices for CO2 allowances under the Regional Greenhouse Gas Initiativeeased slightly during the second half of September. As of Sept. 21, the RGGIspot allowance contract was pegged in a bid-and-offer range of $4.48/ton to$4.68/ton, down 6 cents on the week.

Brokerdata show the RGGI September 2016 vintage 2016 contract was eyed in abid-and-ask spread of $4.48/ton to $4.70/ton, falling 4 cents week over week.As of Sept. 21, the benchmark December 2016 vintage 2016 futures contract wasassessed in a bid-and-offer range of $4.52/ton to $4.75/ton, also down 4 centsfrom the week prior.

Over-the-counterRGGI CO2 allowance prices have been choppy in the aftermath of the program'sthird quarterly auctionof the year. During the sale, held Sept. 7, 100% of the more than 14.9 millionallocation year 2016 CO2 allowances sold at a clearing price of $4.54/ton.Although demand was robust, the clearing price was up just 1 cent from theprogram's prior auction price of $4.53/ton in June. RGGI said 61% of the CO2allowances sold in the September auction were bought by compliance entities ortheir affiliates.

TheRGGI states – Connecticut, Delaware, Maine, Massachusetts, Maryland, NewHampshire, New York, Rhode Island and Vermont – use a market-basedcap-and-trade program to reduce greenhouse gas emissions from regional powerplants, selling nearly all emissions allowances through auctions.

TheRGGI participating states are currently undergoing a program review, with afocus on dovetailing the program with the implementation of the Clean PowerPlan. The current RGGI cap extends until 2020, while the Clean Power Plancompliance period begins in 2022 and ends in 2030.

Aftera comprehensive review in 2013, and in an attempt to bring the RGGI cap withactual emissions levels, the participating states trimmed the ceiling by 45%,to 91 million tons, in 2014. The RGGI emissions cap declines 2.5% each yearthereafter through 2020. The 2016 RGGI cap is 86.5 million tons.

Asthe ongoing RGGI program review heads into the final months of the year, theCollaborative for RGGI Progress, which includes the Acadia Center, , , National Grid andNatural Resources Defense Council, recently submitted comments/recommendationsto RGGI outlining that the RGGI program reduction trajectory should continuethrough 2030 in order to comply with the Clean Power Plan.

"RGGIhas modeled a 5% reduction region-wide, which would go a long way towardmeeting the 80% by 2050 goals. The group could endorse such a target if thecustomer bill impacts and electric system reliability implications wereprojected to be reasonable," the group said in its comments.

Additionally,RGGI could continue to implement a limited cost-containment reserve, but itshould be limited in size so that the reduction each year is no less than 2.5%.

"Priorto the next program review in 2020, RGGI should evaluate the need to adjust forthe private bank of allowances existing as of Dec. 31, 2020, by reducing theannual caps over time to account for the bank, similar to the method used inthe 2012 review. Implementation of any adjustment should commence after 2020,"the group said.

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