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Secondary market RGGI CO2 allowance prices extend losses before next auction

Secondary market prices for CO2 allowances under the Regional Greenhouse Gas Initiative extended recent losses due to tepid buying during the week ended Aug. 20.

Broker data showed the August 2019 vintage 2019 RGGI contract was marked in a bid and offer range of $5.08/ton to $5.20/ton as of Aug. 20, down 15 cents from Aug. 5 assessments. Additionally, the benchmark December 2019 vintage 2019 contract was quoted in a bid and ask spread of $5.10/ton to $5.20/ton, losing 21 cents from Aug. 5 pricing.

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Following a run higher earlier this summer that was sparked in part by a heatwave in the Northeast, which led to increased power burn by utilities, over the counter RGGI allowance prices have been sinking in recent weeks, as buying has dried up ahead of the program's Sept. 4 auction.

The sale will offer more than 13 million CO2 allowances, and a minimum reserve price of $2.26/ton will be used. A cost-containment reserve of 10 million CO2 allowances will be available during the September auction that will only be accessed if the clearing price exceeds the trigger price of $10.51/ton.

At the RGGI's prior auction in June, 100% of the more than 13 million allowances cleared at $5.62/ton, up 35 cents from March and the highest level since RGGI's December 2015 auction. There were 47 bidders in the June RGGI auction, with the ratio of bids coming in at 2.8 times the total amount of allowances on offer.

In other RGGI news, New Hampshire Gov. Chris Sununu, a Republican, on Aug. 16 vetoed legislation that would have re-aligned how the state is allowed to use proceeds from RGGI auctions. Sununu said House Bill 582 would favor businesses at the expense of the state's residential customers, who would have seen higher electricity rates as a result.

Currently, in New Hampshire, all RGGI proceeds in excess of the threshold price of $1 for any allowance sale are returned to consumers in the form of rebates and are used to fund energy efficiency programs.

Aside from New Hampshire, the RGGI program is also comprised of Connecticut, Delaware, Maine, Massachusetts, Maryland, New York, Rhode Island and Vermont. The 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 the proceeds in various ways that vary state by state.

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