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RGGI CO2 allowance secondary market prices slump back toward $5.00/ton

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Essential Energy Insights - February 2021

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RGGI CO2 allowance secondary market prices slump back toward $5.00/ton

Secondarymarket prices for CO2 allowance prices under the Regional Greenhouse GasInitiative continue to slide, moving back toward $5.00/ton following a recentfailed attempt to crack $6.00/ton. According to broker data as of July 6, theRGGI spot allowance contract was pegged in a bid-and-ask spread of $5.15/ton to$5.25/ton, down 25 cents week over week.

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TheRGGI July 2016 vintage 2016 contract was assessed in a bid-and-offer range of $5.15/tonto $5.30/ton, easing 23 cents from the prior weekly period. As of July 6, thebenchmark December 2016 vintage 2016 futures contract was discussed in abid-and-ask spread of $5.20/ton to $5.35/ton, falling 21 cents from the weekprior.

TheRGGI participating states, which include Connecticut, Delaware, Maine,Massachusetts, Maryland, New Hampshire, New York, Rhode Island and Vermont, areundergoing a program review this year, with a focus on dovetailing the programwith eventual implementation of the Clean Power Plan.

Arecent analysis from the Acadia Center points to the success of the RGGIprogram, stating that since its inception, average retail electricity prices inthe RGGI-participating states dropped by 3.4% from 2008-2015.

"Theemergence of low-cost natural gas undoubtedly played a role in this trend, butso too have RGGI-funded investments in energy efficiency and renewable energy,both of which reduce demand for carbon-intensive electricity generation andreduce prices," the report from the Acadia Center said.

TheAcadia Center report also states that since 2008, RGGI emissions have declinedby 37% even as economic growth in the participating states has exceeded that ofother states around the country.

"Thecombination of economic growth with declining emissions witnessed in the RGGIstates is both groundbreaking and a trend that is likely to spread asadditional states adopt market-based climate programs like RGGI. Historically,electricity demand has been linked to economic growth, and electric sectoremissions have increased during periods of economic expansion. However, thiscorrelation has been broken in the RGGI region."

Secondarymarket RGGI CO2 allowance prices began to rise after the results of theprogram's latest quarterly auction were released in early June even though theauction clearing price was the lowest in more than two years.

Atthe June 1 sale, 100% of the more than 15.0 million allocation year 2016 CO2allowances on offer were purchased at a clearing price of $4.53/ton. Theclearing price, which was down 72 cents, or 13.7%, from the prior auction priceof $5.25/ton, was the lowest since the program's March 2014 auction, whichcleared at $4.00/ton.

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Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including powerand naturalgas index prices, as well as forwardsand futures,visit our Commodities Pages.