RGGI Carbon Price Sinks to $4.53 at Latest Auction

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By Gerald B. Silverman

June 3 — The price of Regional Greenhouse Gas Initiative carbon allowances continued to slide in the latest auction, selling for $4.53 each, the initiative announced June 3.

The auction raised $68.3 million for the nine states that participate in the cap-and-trade-program—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. About 15 million allowances were sold.

The allowance price dropped 13.7 percent from March when credits sold for $5.25 each and is the lowest since March 2014.

The drop in price continued a trend that began earlier this year and led to a 30 percent decline in March auction prices, when compared to the previous auction in December 2015.

RGGI experts were expecting prices to stabilize or decline in the June auction due to an oversupply of allowances flooding the market, the cheap price of natural gas and other factors (101 ECR, 5/25/16).

Supply and Demand

“While the impacts of various legal and regulatory dynamics were uncertain, we weren't surprised at the results of this auction, which seem to reflect a current balance between supply and demand,” Derek Furstenwerth, senior director of environmental services at Calpine Corp., told Bloomberg BNA in an e-mail.

The decline in prices can be attributed to weak market fundamentals, uncertainty about the RGGI program after 2020 and uncertainty about the future of the Environmental Protection Agency's Clean Power Plan, according to Timothy T. Cheung, vice president of Washington-based ClearView Energy Partners LLC.

Cheung, in a research report to clients, said RGGI carbon prices could sink to $2.10 if one or more of these factors doesn't change.

The Boston-based Acadia Center said the decline in prices was due to an estimated oversupply of 130 million allowances and continued low carbon emissions. It said emissions reductions have outpaced the RGGI emissions cap, lowering demand and inflating the supply of allowances.

“The RGGI states should seek to improve these market conditions through the current program review by establishing ambitious cap levels through 2030, reforming the cost containment reserve and conducting additional adjustments for banked allowances,” Jordan Stutt, an Acadia policy analyst, told Bloomberg BNA in an e-mail.

Program Review

RGGI is in the final stages of a program review to determine what changes are needed to comply with the EPA's Clean Power Plan (RIN:2060-AR33), which sets limits on carbon dioxide emissions from the power sector, and improve the design of the program. Acadia and others are pushing RGGI to lower its overall cap, like it did in its previous program review in 2012, which resulted in a 45 percent reduction in the cap. It is also pushing RGGI to change the cost containment reserve, a mechanism designed to prevent price spikes by releasing additional allowances for sale.

Among the companies eligible to bid in the auction were Consolidated Edison Co., Koch Supply and Trading, Morgan Stanley Capital Group, National Grid, Vitol Inc., DTE Energy Trading Inc., EDF Trading North America LLC, Calpine Energy Services LP, CE2 Carbon Capital LLC, DRW Commodities LLC, GDF SUEZ Energy Marketing NA Inc., NRG Power Marketing LLC, Dominion Energy Marketing Inc., Exelon Generation Co. LLC, National Grid and TransCanada Power Marketing Ltd. The identities of actual bidders are masked by RGGI.

Among the highlights from the auction are:

  •  Electricity generators, which must hold one allowance for each short ton of carbon emissions, purchased 64 percent of allowances in the auction, while traders and other non-compliance entities purchased 36 percent.
  •  The bids for allowances were 3.1 times the supply, a decline from 3.5 in the last auction.
  •  Allowances were awarded to 32 bidders, including two that purchased more than 3.7 million.

To contact the reporter on this story: Gerald B. Silverman in Albany, N.Y., at gsilverman@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com