The carbon price in the Regional Greenhouse Gas Initiative (RGGI) would climb above $10 if states deepen their annual reduction targets after 2020, analysts ClearView Energy Partners said.
RGGI prices have softened recently amid regulatory uncertainty, speculative selling and a weak energy market, but the northeastern cap-and-trade programme could receive a boost if regulators step in to provide clarity over future ambition, ClearView said in a research note.
“We maintain our view that the fundamentals of the RGGI program point towards flat-to-declining carbon prices until (1) the fundamental picture changes; (2) RGGI states provide more details regarding a second revision to the program; or (3) the fate of the Clean Power Plan (CPP) becomes clearer,” the note said.
RGGI officials are currently undergoing a review of the system, with potential changes to be implemented in time for the start of the fourth trading phase in 2018.
One major issue is what to do with the market’s overall CO2 cap, which currently is set to fall 2.5% annually until 2020.
“If RGGI states were to agree to extend their current reduction schedule of 2.5% per year into the next decade (2021-2030), we estimate that an annual carbon price of $7.32/tCO2 (in 2015 dollars) could incentivize the coal-to-gas switching necessary to meet that hypothetical emissions cap,” ClearView said.
“If the states were to set a 3% per year target for 2021-2030, we estimate that the carbon price would need to rise to $10.56/tCO2.”
RGGI’s 2020 target is more ambitious than the combined 2030 goal given to the nine states under the federal Clean Power Plan, and officials told a stakeholder meeting last month that setting a 2030 RGGI target in line with the CPP target was one of the options under consideration.
But by doing that, the programme would face a full decade in which emitters would not have to do anything to meet their obligations, ClearView said.
Even a 1.25% annual CO2 reduction goal would not require any additional actions, according to the analysts.
By Stian Reklev – email@example.com