RGGI market monitor releases 4Q 2014 report on secondary CO2 trading

Potomac Economics, the independent market monitor for the Regional Greenhouse Gas Initiative (RGGI), has released its report on the secondary market for RGGI carbon dioxide (CO2) allowances for the fourth quarter of 2014.

Among other things, the report shows that secondary market prices in RGGI were up 69% compared to one year earlier.

The firm continues to find no evidence of anti-competitive conduct in the RGGI CO2 allowance secondary market, according to the report released Feb. 24.

Potomac Economics found the average transfer price in RGGI’s CO2 Allowance Tracking System (COATS) during the fourth quarter of 2014 was $5.22, approximately 7% higher than in the prior quarter and 69% higher than the fourth quarter of 2013.

Prices increased steadily throughout the quarter, rising from approximately $4.95 at the start of October to a daily high of $5.32 in mid-December.

The primary market for RGGI CO2 allowances consists mainly of the auctions where allowances are initially sold.

Once a CO2 allowance is purchased in the primary market, it can then be resold in the secondary market. 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 is important for several reasons. First, it gives firms an ability to obtain CO2 allowances at any time during the three months between the RGGI auctions. Second, it provides firms a way to protect themselves against the potential volatility of future auction clearing prices. Third, it provides price signals that assist firms in making investment decisions

The 4Q14 report on the secondary market for RGGI CO2 allowances 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 October to December 2014, is based on data reported to the Commodity Futures Trading Commission (CFTC) and the Intercontinental Exchange (ICE), as well as other data.

Northeast and Mid-Atlantic states participating in the third RGGI control period (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont) have implemented the first mandatory market-based regulatory program in the U.S. to reduce greenhouse gas emissions.

The Environmental Protection Agency (EPA) has also praised RGGI as an example of regional collaboration to trim CO2 in connection with the proposed Clean Power Plan.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.