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Northeast cap-and-trade secondary market prices continue to falter

At the secondary market, Regional Greenhouse Gas Initiative carbon dioxide prices extended lower. Broker data as of Aug. 8 showed the August 2017 vintage 2017 RGGI contract pegged in a bid-and-ask range of $3.42/ton to $3.60/ton, down 22 cents week over week.

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The benchmark December 2017 vintage 2017 futures contract was quoted in a bid-and-offer spread of $3.45/ton to $3.67/ton as of Aug. 8, losing 24 cents on the weekly period.

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The participating states are wrapping up a program review that began at the start of 2016, with a focus on tightening the RGGI emissions cap post-2020 to align the ceiling with current emissions levels while accounting for an excess of allowances held by market participants.

While officials from several participating states have expressed concerns over the potential costs of deeper cuts to consumers, other interested parties believe that program officials should lean toward the most stringent emissions cap reduction to keep the participating states on course to reach their climate goals, to help alleviate the oversupply in the market and to keep a platform underneath RGGI CO2 allowance prices.

Updated modeling presented by RGGI at its last stakeholder meeting at the end of June showed several options under consideration: a 2.5% cut per annum post 2020; a one-time cap reduction of 6.5% in 2019, followed by a 3% cut each year after 2020; and a 3.5% cut per annum post 2020.

The RGGI cap for 2017 is set at 84.3 million tons and declines 2.5% each year until 2020. To account for the banked allowances in the market, there were two interim adjustments to the cap made for 2014 to 2020. The 2017 RGGI adjusted cap is 62.5 million tons.

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, natural gas and coal index prices, as well as forwards and futures, visit our Commodities Pages.