NA Markets: RGGI prices climb, testing appetite for tapping 2016 Cost Containment Reserve

Published 11:36 on October 2, 2015  /  Last updated at 13:44 on October 23, 2015  /  Americas, US  /  No Comments

Prices in the US RGGI market continued to gain in the wake of the Sep. 9 auction, with Dec-15 allowance prices surging by some 15% to a record $6.82 last week before settling back to $6.78 on Thursday.

Prices in the US RGGI market continued to gain in the wake of the Sep. 9 auction, with Dec-15 allowance prices surging by some 15% to a record $6.82 last week before settling back to $6.78 on Thursday.

Participants said the market was reacting to the strong auction result, in which the clearing price of $6.02 triggered the release of the remaining allowances from the Cost Containment Reserve and underlined the view that the market is now short of permits on a year-by-year basis.

“All of the CCS volumes got taken out in the third auction, so there’s nothing holding the price down,” one broker said. “There’s no soft cap up to $8.”

He said next year’s tranche of 10 million CCR permits will become available at next March’s auction with a trigger price of $8, and the market may be testing the appetite of buyers for those extra allowances.

After regulators amended allocation rules for the period starting in 2014, annual allowance supply is now less than verified emissions from the system’s participating utilities, broker Evolution Markets said in a September report.

“This year’s emissions are on track to be around 85 million tons, (while) the annual supply of allowances (is) at around 70 million tons, including the 10 million CCR allowances released this year,” Evolution said.

Evolution estimates up to 135 million surplus units are still available from the previous trading phase but could be used up by 2017 or 2018, with many already held against future compliance.

WCI OFFSET PROBE

In California, the news this week that regulators had begun an investigation into an offset project in Indiana did not appear to roil the market.

The probe covers the issuance of 15,070 offsets from a livestock methane project, and the possible cancellation of such a relatively small volume may not cause a significant move in prices, one source said.

Climate Connect analyst Steven Neoh said the case had several similarities with the invalidation last year of offsets from a Clean Harbors ozone-depletion project in that both investigations did not relate to breaches directly related to the emission reduction activity.

“[While the investigation in Indiana] is about storage of manure, and Clean Harbors was about by-product disposal, in both cases they are not the destruction act and have no materiality implications. However, they are within the project boundaries, meaning ARB are within rights to invalidate.”

CCAs were up 2 cents week-on-week to close Thursday at $12.78 on turnover of 2.5 million on ICE, down from 3.4 million last week.

One broker said the market saw a little uptick in volumes and prices on Tuesday, when news of the investigation broke, but by late Thursday activity had settled down again.

The ARB held a public workshop on Thursday to discuss its updated AB32 Scoping Plan to chart its emissions reduction strategy through 2030, when CO2 must be cut by 40% from 1990 levels. The final version is due in late 2016.

By Alessandro Vitelli – news@carbon-pulse.com

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