Secondary market for RGGI credits crashes

By Grant Bosse on September 6, 2011
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(NEW YORK, NY) The carbon credits issued under the northeast’s regional cap and trade program aren’t trading very much since New Jersey announced its withdrawal from the program. A report on the secondary market for the Regional Greenhouse Gas Initiative (RGGI) shows that trading of RGGI futures in down 55% from a year ago, showing that markets have less faith in the future of the program.

The report, prepared by Potomac Associates for RGGI Inc, tracks activity on the Chicago Climate Futures Exchange (CCFE). The ten RGGI states auction off the right to emit carbon dioxide from fossil fuel power plants four times a year, and covered plants have until next spring to acquire enough credits to cover emissions from the last three years. If these companies don’t purchase enough RGGI credits at auction, they would need to go to the secondary market to make up the difference. But the Potomac report shows that other than a sell-off following the New Jersey announcement, RGGI credit trading isn’t all that robust.

The next quarterly RGGI auction is tomorrow. The ten states have put 44 million CO2 credits out to bid, which would generate more than $83 million at the lowest reserve price if all the credits are sold. RGGI prices can not fall below a reserve price of $1.89. If there aren’t enough buyers for the available credits at that price, the RGGI credits go unsold. Auction prices have hovered at the reserve price since September of 2009. But demand plummeted in the June quarterly auction when 70% of the offered allowances went unsold, leaving future RGGI revenues in question.

The Potomac report shows little movement in the RGGI closing price on the CCFE, which has traded between $1.85 and $1.94. The price averaged $1.90 prior to New Jersey’s decision to leave the ten-state compact at the end of the year, and $1.87 after the announcement. The report found little interest in RGGI credits outside of the power companies that must produce them. Those companies hold 98% of all RGGI credits as of the end of the last quarter, leaving little room for a secondary market. Further, there has been only a single trade of RGGI options contracts since August of 2010.

Investors are also staying away from RGGI allowances in future years. The current compliance period ends on December 31, 2011. The second year compliance period runs through 2014. The price of 2014 RGGI allowances has also fallen to the reserve price, and secondary market trading fell 55% from 4.7 million allowances in the first quarter to 2.1 million in the second. Just 8.3 million allowances were traded between firms not covered under RGGI, and 86% of those trades came after New Jersey’s withdrawal in June.

The New Hampshire Senate convenes tomorrow afternoon to consider a number of bills vetoed by Governor John Lynch. That includes SB 154, which would pull New Hampshire out of RGGI. RGGI opponents are currently one vote short of overriding that veto.

Posted under Featured, News.

4 Comments For This Post So Far

  1. Ric Werme
    8:30 pm on September 7th, 2011

    About your graphic showing 11 states – it doesn’t make it clear that Maryland is in RGGI and that Pennsylvania is not.

    It appears to me that some utilities are buying allowances on an annual budget, this would explain why the first auction of the year sold well, but little additional demand appeared in June. I’m expecting both September and December to be abyssmal, at least from the point of view of RGGI supporters. People looking forward to all the auction proceeds may be sorely disappoint by Christmas.

  2. Bill Vancouver
    5:38 pm on October 2nd, 2011

    Of course Governor Lynch wants NH to remain in RGGI. This is a hidden tax revenue stream for all member states. Even Christy (NJ) kept about $65 million of RGGI money for his state’s treasury. The ones who get screwed are the ratepayers as the carbon credit costs are passed to the retail customer.
    Thank you Watchdog for keeping an eye on RGGI. You are doing a good job exposing these frauds for what they are.
    How many more bitter cold winters before the general public realizes that CO2 is a minor trace gas that cannot possibly be the plant’s rheostat? Climate science has been replaced by climate politics. The biggest stooge in the entire anthropogenic global warming fiasco has been (and is) the mainstream media. They are now Environmental Journalists with an agenda, which does not include rebuilding the American ecomony with affordable, on-demand energy.
    Wake Up, America.

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