The independent market monitor for the Regional Greenhouse Gas Initiative reported Nov. 25 that carbon dioxide (CO2) allowance prices on RGGI’s secondary market decreased 11% in the third quarter of 2013 after increasing 70% in the first half of 2013.
Secondary market prices exhibited a premium over the auction clearing price in the third quarter of 2013, according to the monitor, Potomac Economics.
Transaction prices recorded in RGGI’s CO2 Allowance Tracking System (COATS) averaged $3.03. The prices of Intercontinental Exchange (ICE) futures trades averaged $3.00. By contrast, the clearing price in Auction 21 (held in September) was $2.67, the monitor said.
The primary market for RGGI CO2 allowances consists mainly of the auctions where allowances are initially sold. The secondary market for RGGI CO2 allowances comprises the trading of physical allowances and financial derivatives, such as futures and options contracts.
The secondary market helps firms insulate themselves against the potential volatility of future auction clearing prices. It also provides price signals to help firms make investment decisions in Northeast markets affected by the cost of RGGI compliance.
RGGI is a cooperative effort of Northeast states to reduce emissions of carbon dioxide (CO2) from the power sector.
This report was prepared by the contractor in the course of performing work contracted for and sponsored by RGGI, Inc. on behalf of the RGGI Participating states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont).
Third Quarter 2013 is part of Potomac’s ongoing monitoring of the RGGI auctions and the secondary markets where CO2 allowances trade. The report, which addresses the period from July to September 2013, is based on data reported to the Commodity Futures Trading Commission (CFTC), Intercontinental Exchange (ICE), and the New York Mercantile Exchange (NYMEX), as well as other data.
Potomac Economics said the volume of CO2 allowance transfers between unaffiliated firms was 4 million, up from 2.1 million allowances in the third quarter of 2012. Open interest in RGGI futures contracts increased 75% from 4.7 million at the end of the prior quarter to 8.2 million at the end of 3Q13.
Open interest in RGGI option contracts increased 73% from approximately 6.2 million at the start of the third quarter to approximately 10.7 million at the end of the quarter.
Potomac Economics also said that it had found no evidence of anticompetitive conduct.