Record trade in RGGI futures as Q3 emissions increase 10%

Published 22:16 on November 4, 2015  /  Last updated at 00:35 on November 5, 2015  /  Americas, US  /  No Comments

RGGI permit prices jumped 1.2% amid record trade on Tuesday after the market administrator published data showing Q3 emissions across the nine-state market rose 9.8% year-on-year.

RGGI permit prices jumped 1.2% amid record trade on Tuesday after the market administrator published data showing Q3 emissions across the nine-state market rose 9.8% year-on-year.

Total emissions increased to 25.1 million short tons, compared with 22.9 million tons in Q3 2014, according to RGGI data.

However, year-to-date emissions are lower than last year at 67.9 million tons compared to 69.5 million.

Dec-15 permits advanced to $6.67 a ton on Tuesday on ICE Futures as total volume exceeded 12 million tons, the most since the exchange launched its RGA futures, according to ICE data.

The nine-month emissions data is in line with full-year forecasts from Thomson Reuters analysts.

“Our 2015 forecast is 84 million short tons. Our calculations seem to be consistent with the data RGGI released,” said Thomson Reuters analyst Tom Marcello.

Q4 2014 emissions totalled 16.9 million tons, a number which, if repeated this year, would give a 2015 total of 84 million tons – some 2.5 million below last year.

According to Marcello, the RGGI market will have a cumulative market balance of 134 million permits as of the end of 2015, comprising the surplus from the last two years.

“There’s a lot of variance as to how much of a surplus is out there,” said Jordan Stutt, a policy analyst at the Acadia Center, a climate advocacy group in Boston.

“The idea behind the interim allowance adjustment is that all of the surplus allowances that were brought into the programme in the first two compliance periods will be eliminated by 2020, but I’m not sure that’s the case given how the Cost Containment Reserve allowances have been flying into the market.”

The interim allowance adjustment is made at the start of each control period, in which the supply of permits for the following period is reduced to take account of unused allowances from the prior period.

Dec -15 permits were valued at around $6.68 a ton at midday Wednesday following a couple of morning trades at that level, according to Grace Relf, a broker at Karbone.

“It may be that market participants see RGAs as a good market to build some length in,” she said.

“After the last auction, it was clear that the market was bullish on RGGI allowances. The recent emissions data confirmed that.”

Stutt noted that prices are rising even as emissions under RGGI are declining.

“The market is not behaving based on fundamentals at this point. A lot of that may have something to do with the allowances that are being purchased by non-compliance entities as investments.”

“Those companies have their price targets and they may not be willing to sell at this point.”

By Alessandro Vitelli – news@carbon-pulse.com

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