RGGI prices rallied Thursday after falling steadily for almost four weeks, with the Dec-15 futures jumping by 11 cents or 1.7% to $6.61 on bumper volume of 3 million.
The benchmark contract had dropped nearly 5% since peaking at $6.82 in the wake of the Sep. 9 oversubscribed auction.
“I think some people who didn’t get (allowances) in the auction came in to buy afterwards, and that drove up prices,” a New York-based broker said Thursday.
“Now that they’ve been filled, the bid’s fallen away a little and we’re seeing some end-of-year profit-taking as well.”
Trading sources said some participants are starting to roll surplus 2015 allowances into the 2016 contract ahead of the former’s expiry.
The Dec-16s saw 3.8 million permits change hands in the week to Thursday, compared with 100,000 allowances the previous week.
Total trading volume topped 9 million, more than six times the amount transacted two weeks ago.
RGGI states will hold their final auction of the year on Nov. 2, and traders said they don’t expect to see that sale clear at a significant premium to the spot price, as happened in September.
“The market’s been slow. It’s a natural slowdown after the auction,” a second broker said. “I think (prices) will start to creep back up now.”
Meanwhile, Californian trading was extremely steady with prices for the benchmark Dec-15 contract trading at $12.88 all week.
Total volume was more than 4.5 million tons, compared with 2.5 million tons a fortnight ago, with four-fifths of this week’s turnover changing hands on Wednesday.
The state’s Public Utilities Commission Thursday approved unanimously a regulation requiring natural gas suppliers to from this year hand over a portion of their allocated carbon permits to the market’s administrators for auction.
Similar to ARB’s treatment of electric utilities, ARB last year proposed to allocate free allowances to natural gas suppliers to protect ratepayers, ahead of the sector’s inclusion in California’s market from Jan. 2015.
Natural gas suppliers receive annually a number of allowances equal to their compliance obligation based on their 2011 output and multiplied by an adjustment factor representing the scheme’s overall emissions cap decrease.
But under this week’s approved regulation, starting this year a minimum of 25% of those allowances would be handed back and put up for auction. That threshold then increases by 5 percentage points annually through 2020.
The revenue from the sale of the consigned allowances is to be used to compensate ratepayers for increases in gas prices resulting from the state’s carbon market.
According to the decision, four natural gas utilities will this year hand over allowances equivalent to $147 million, which will be refunded to residential consumers at between $11.97 and $14.89 per household.
By Alessandro Vitelli – firstname.lastname@example.org