Trade in the Regional Greenhouse Gas Initiative (RGGI) climbed 17% in Q4 last year as the market’s second compliance period approached its end, the market regulator said on Tuesday.

Over the three-month period, a total of 95.3 million RGGI allowances changed hands on the Intercontinental Exchange, according to a quarterly report issued by Potomac Economics, the market monitor. http://www.rggi.org/docs/Market/MM_Secondary_Market_Report_2014_Q4.pdf

Most of the volume was in the futures market, where 53.7 million allowances traded, up from 45.9 million in Q4 the previous year.

In the spot market, 41.6 million allowances traded, rising from 35.6 million in the final quarter of 2013.

The uptick in volume comes ahead of RGGI’s March 2 compliance deadline, when power plants across the nine states covered must hand over enough allowances to the government to match their emissions over the 2012-2014 period.

HIGHER PRICE

The allowance price in RGGI’s secondary market averaged $5.22 over the quarter, peaking at $5.32 in mid-December. The average price was 7% higher than the previous quarter, and 69 percent above Q4 2013 levels, it said.

In February 2013, lawmakers agreed to lower RGGI’s cap by almost half from 2014 in a bid to stimulate trading and lower emissions.

Despite the cap reduction, Potomac said the market is still expected to be long. It said only 66 percent of the 403 million allowances in circulation will be needed for compliance.

The annual cap on carbon dioxide emissions for RGGI participants was 91 million short tons in 2014, and will be reduced by 2.5 percent each year until 2020.

By Stian Reklev – stian@carbon-pulse.com