Secondary market for RGGI allowances weaker in 2Q, says Potomac Economics

Potomac Economics, the independent market monitor for the Regional Greenhouse Gas Initiative (RGGI), said Aug. 31 that the “secondary market” for RGGI CO2 allowances was weaker during the second quarter of 2016.

RGGI is a cooperative effort of Northeast and Mid-Atlantic states to reduce emissions of carbon dioxide (CO2) from the power sector. It holds regular auctions for CO2 allowances.

The next auction is set for Sept. 7. “The clearing price in Auction 32, held on June 1, was $4.53, which was reasonably consistent with secondary market prices leading up to and immediately following the auction,” Potomac Economics said. The auction clearing price fell 14% from Auction 31 (which was held in March 2016).

Once a CO2 allowance is purchased in the primary market auction, 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.

In its Aug. 31 report, Potomac Economics said secondary market activity decreased significantly from the first quarter.

The total volume of CO2 allowance transfers between unaffiliated firms was 11.1 million, down 52% from the previous quarter. The total volume of trading of RGGI futures listed on ICE, the over-the-counter electronic trading platform, was 42.6 million CO2 allowances in the second quarter of 2016, down 59% from the previous quarter, the firm reported.

CO2 allowance futures prices averaged $5.14, down 15% from the previous quarter and 7% from the second quarter of 2015.

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.