US: RGGI auction settled 3% lower than June auction

The Regional Greenhouse Gas Initiative (RGGI) auction settled below $5.00/tCO2e as compliance entities purchase a majority of the allowances ahead of the compliance period next year, according to results posted on Friday.

RGGI, which regulates emissions from nine northeastern states, sold 18m allowances for $4.88/tCO2e, a 3% price decline from the June auction settlement price of $5.02/tCO2e.

Traders and brokers had expected prices to settle around $5.00/tCO2e during Wednesday’s auction, because most expected speculators to continue to be aggressive in the market ( see EDCM 3 September 2014 ). However, compliance entities took a much stronger approach than speculators in the auction.

Compliance entities purchased 80% of 18m allowances on offer during Wednesday’s auction, and the group now holds 80% of the allowances in circulation, or roughly 305m of the 382m allowances. Compliance entities had not purchased more than 69% of the allowances on offer since the December 2012 auction.

Speculators purchased roughly 3.6m allowances during the auction, and they now own 20% of the allowances in circulation. Speculators had been purchasing between 30-50% of the allowances over the past six auctions.

Traders said the auction results would likely add little pressure either way to the market, because compliance entities will not have as much urgency to purchase allowances prior to the compliance deadline in March.

One trader said the results should keep prices in their current $4.80-5.00/tCO2e range until the next RGGI auction in December.

Traders said there was little activity on the secondary market after the auction results. Dan X. McGraw