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Northeast carbon market allowance prices extend recent gains

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Northeast carbon market allowance prices extend recent gains

Secondary market prices for Regional Greenhouse Gas Initiative carbon dioxide allowances continued to gain upward traction during the first week of October.

According to broker data as of Oct. 3, the October 2017 vintage 2017 RGGI contract was quoted in a bid-and-ask range of $4.28/ton to $4.45/ton, up 9 cents week over week.

The benchmark December 2017 vintage 2017 futures contract was assessed in a bid-and-offer spread of $4.25/ton to $4.45/ton, rising 5 cents from the week prior.

SNL Image

SNL Image

At the end of August, RGGI over-the-counter allowance prices surged above $4.50/ton after the nine RGGI states announced proposed program changes, including a cut to the emissions ceiling by an additional 30% by 2030, relative to 2020 levels.

Under the proposal, 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. The RGGI states are also proposing additional adjustments to the RGGI cap, to be implemented from 2021 to 2025, to account for the full bank of excess allowances at the end of 2020.

Other possible RGGI program changes include the implementation of an emissions containment reserve. The emissions containment reserve would allow states to withhold up to 10% of their annual emissions allowances in reserve, restricting the sale of those allowances when prices fall below certain levels — $6.00/ton in 2021, with the price to rise by 7% per year thereafter.

On Sept. 25, the RGGI states held a stakeholder meeting to solicit comments and present initial modeling of its suggested program changes.

Modeling presented at the meeting showed that under the high sensitivity model rule policy case, in nominal dollars, RGGI carbon dioxide allowance prices could climb from $10.00/ton in 2017 to $24.00/ton by 2031. The high sensitivity scenario assumes a national carbon policy will exist outside the RGGI footprint against a backdrop of high natural gas prices and a 50% reduction in nuclear retirements in the region.

The RGGI states expect to release a final model rule with additional modeling and analyses by the end of this year. Then, the participating states will begin their individual processes to adopt the new model rule. It is hoped that all state statutory and regulatory amendments related to the updated rule will be completed as early as January 2019, with program changes to be in place and effective by January 2021.

The RGGI states are comprised of 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.

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