(Updates with details, comments)
The Regional Greenhouse Gas Initiative (RGGI) sold 25.4 million 2015 vintage CO2 allowances for $6.02 each, the scheme’s regulator said on Friday, some 10 million more than expected as high prices in the north-east US regional market triggered the sale of additional units.
The clearing price was the highest yet for an auction in the nine-state ETS, according to RGGI data.
Market regulator RGGI, Inc. had initially offered 15.4 million permits in the sale, the 29th to date, with as many as 10 million additional units available from the programme’s supply safety valve, the Cost Containment Reserve (CCR), if bids rose above the trigger level of $6.
“It’s a real bullish signal that it cleared over $6 and that all allowances cleared,” one broker said. “If it’s in the hands of speculators and they all got bought, then it’s no surprise it’s higher.”
Prices jumped on the news, with the Dec-15 futures trading as high as $6.21, the broker added, a daily 19-cent gain based on the Sep. 10 closing price on exchange ICE.
The clearing price was 9.5% above that recorded in the previous auction, which was held on Mar. 3, 2015 and offered 15.5 million units. Prices have risen in seven of the last eight sales.
RGGI, Inc. said 74% of the allowances in Auction 29 were bought by compliance entities, down slightly from the average of 77% across all previous auctions.
“Compliance-oriented entities and their affiliates purchased 51% of allowances (offered in this week’s auction). 52% of allowances in circulation will be held by firms that are believed to hold them for compliance purposes following the settlement of allowances sold in Auction 29.”
Some 55 companies participated in the auction – 37 compliance-oriented entities and 14 other firms – with four compliance entities and eight others submitting bids in excess of 2 million units each.
Overall, compliance entities made up 40% of the number of allowances for which bids were submitted, indicating that speculative buyers represented the majority of bidding interest.
The sale recorded a bid-to-cover ratio of 3.4 based on the initial supply of 15.4 million units.
A LITTLE LONGER
Power plants in the regional market emitted 86.3 million short tons of CO2 in 2014, 5.2% below the cap, as renewables generation increased and energy saving measures trimmed energy demand.
The latest supply coming to market makes it a little longer, another trader said.
The remaining auction in 2015, scheduled for Dec. 2, won’t offer any permits from the CCR as the reserve has now been exhausted for the year.
This week’s sale, which raised more than $152 million for renewable energy and energy efficiency projects in the nine states, marks only the second time that the CCR has been activated.
“The purchase of 10 million CCR allowances in Auction 29 demonstrates the need for reform of this price control mechanism” said Jordan Stutt, a policy analyst with environmental group Acadia Center.
“These additional allowances have now been made available in both years of the CCR’s existence. Allowances purchased from the CCR inflate the RGGI cap, undermining the program’s environmental performance and complicating the process of demonstrating compliance with the Clean Power Plan and state GHG reduction requirements.”
In Mar. 2014, the regulator sold the full 5 million permits from its reserve in addition to the scheduled 18 million allowances.
BLUEPRINT
RGGI has raised more than $2.2 billion from the auctions held since Sep. 2008. According to a report published in April, the programme has saved US consumers and business more than $2.9 billion in energy costs through investments in renewables, energy efficiency and emissions abatement.
The country’s first carbon market is being touted as a model for other states as they consider ways to comply with President Obama’s Clean Power Plan. The CPP allows state governments to choose how they comply with Environmental Protection Agency-mandated emissions cuts.
“RGGI states’ success in reducing climate pollution from the power sector has paved the way for other states to adopt effective market-based climate programs,” said Acadia Centre president Daniel Sosland.
“RGGI states have created the blueprint for an effective and economically beneficial pathway to a clean energy future.”
By Alessandro Vitelli and Mike Szabo – news@carbon-pulse.com
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