RGGI market monitor says 2014 CO2 prices well above 2013 levels

Potomac Economics, the independent market monitor for the Regional Greenhouse Gas Initiative (RGGI) said May 5 that the average 2014 carbon dioxide (CO2) auction clearing price was $4.72, a 62% increase from $2.92 in 2013.

The firm also said that secondary market prices were generally consistent with auction prices at an average price of $4.82. 

Prices have likely been affected by the Environmental Protection Agency (EPA) issuance of its Clean Power Plan in June 2014. The rule aims to have states curb power sector carbon emissions 30% by 2030. The final rule is due out this summer. RGGI has been hailed by EPA as a model of a regional CO2 cap-and-trade program.

In its regular report, Potomac Economics found no evidence of anti-competitive conduct has been found in the RGGI market for CO2 allowances.

The RGGI CO2 allowance auctions are still the primary means by which firms acquire allowances, but there was significant increased volume in the secondary market. Futures trading volume rose 38% from 2013 to 2014.  Futures trading activity was highest in the fourth quarter of 2014, according to the May 5 report.

The new CO2 emissions cap was set at 91 million tons for 2014, and is being reduced by 2.5% per year until it reaches approximately 78 million tons for 2020.

Demand for allowances at auction also increased in 2014. For the second year in a row, no allowances offered at auction have gone unsold. The demand for CO2 allowances was dispersed relatively widely across firms, inviting widespread participation in the auctions. The number of auction participants in 2014 remained at an average of 45 bidders. Participation by many firms promotes competition and helps ensure that CO2 allowance prices are determined efficiently.

Compliance entities held 85% of the CO2 allowances in circulation at the end of 2014, an increase from 81% at the end of 2013.

RGGI participating states include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

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.