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Northeast secondary market carbon allowance prices falter before auction


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Essential Energy Insights, April 2021

Northeast secondary market carbon allowance prices falter before auction

Following recent gains, over-the-counter prices for carbon allowances under the Regional Greenhouse Gas Initiative stepped lower during the week ended May 24 ahead of the next quarterly auction.

As of May 27, the May 2019 vintage 2019 RGGI contract was eyed in a bid-and-ask spread of $5.55/ton to $5.67/ton, easing 6 cents from May 15 assessments. The benchmark December 2019 vintage 2019 contract was marked in a bid-and-offer range of $5.70/ton to $5.80/ton, down 9 cents from May 15 values.

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In recent weeks, RGGI CO2 allowance prices had been poised higher as entities scooped up allowances in the secondary market ahead of the June 5 auction, during which the nine RGGI-participating states will offer for sale 13.2 million allowances.

The offering will be composed of allocation year 2019 CO2 allowances as well as 13,222 allocation year 2017 allowances, 274,735 allocation year 2018 allowances and 47,855 allocation year 2019 allowances from state set-aside accounts.

The cost containment reserve, a fixed additional supply of allowances only available if prices exceed certain levels, will be available in the June auction. This year's level is $10.51/ton and increases 2.5% through 2020 to account for inflation.

At the program's previous auction in March, 100% of nearly 12.9 million allowances sold at a clearing price of $5.27/ton, down 8 cents from the December 2018 sale price. The March RGGI auction netted almost $68 million for the participating states.

The RGGI program is made up of Connecticut, Delaware, Maine, Massachusetts, Maryland, New Hampshire, 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 proceeds in energy efficiency projects.

New Jersey, a founding member of the program, has begun the initial steps to rejoin, but efforts to link Virginia to the RGGI have been delayed. Virginia Gov. Ralph Northam signed the state's budget bill May 2 but did not use his authority to remove language the Legislature included prohibiting the use of state funds for participation in the program.

Northam did not explain why he left the measure in the bill. In April, the Virginia Air Pollution Control Board adopted a rule to move forward with linking the state to RGGI.

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