RGGI Carbon Prices Continue Upward Trend

Carbon allowances sold by the Regional Greenhouse Gas Initiative (RGGI) have set a new high, continuing an upward trend that began a year ago.

The key takeaways from the latest auction are that the Clean Power Plan is helping to drive prices up and that demand for the allowances continues to be strong.

Demand was so strong that an additional 10 million allowances released from a reserve were gobbled up along with the 15.3 million allowances originally offered for sale. Bids were submitted to purchase 3.4 times the number of allowances initially offered for sale before the cost containment reserve was triggered.

In all, the Sept. 9 auction raised a whopping $152.7 million, which is the most ever and 78 percent more than the amount raised in RGGI’s previous auction.

All this is very good news for the nine states participating in the RGGI program —New York, Delaware, Maryland, Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire and Maine.  The states will use the money for energy conservation, renewable energy and direct bill assistance programs.

Dan Scarbrough, president of CTX USA, told Bloomberg BNA that the number of auction participants and the sale of all the allowances were an “encouraging sign of the depth and robustness of the primary RGGI market.” Forty-five bidders were awarded allowances, including eight bidders who purchased at least 1 million.

William M. Shobe, director of the Center for Economic & Policy Studies at the University of Virginia, told Bloomberg BNA he was somewhat surprised at the $6.02 allowance price in the latest auction. 

“If you look at underlying factors within the RGGI region itself, you wouldn’t really expect a big run-up in RGGI allowance prices,” he said. 

Shobe said the increase was probably due to the impact of the Clean Power Plan, which is creating an easy path for interstate allowance trading. That path could lead to RGGI’s door since the initiative has a proven track record over the past seven years, according to Shobe and other observers.

The Clean Power Plan requires reductions of carbon dioxide emissions from the nation's fleet of existing power plants. Each state will develop plans to meet its targets.

In the run-up to the auction, the main question on everyone’s mind was whether or not prices would hit the $6 mark because that’s the price RGGI has set for triggering the cost containment reserve (CCR) mechanism.

The mechanism is a unique RGGI construct that is designed to prevent spikes in prices by releasing a pool of additional allowances. The price trigger rises by $2 each year, so next year’s trigger price will be $8.

RGGI’s next quarterly auction will be held Dec. 2.

by Gerald B. Silverman