High prices expected at RGGI CO2 allowance auction

21 May 2014

ICIS analysts expect to see significant rise in clearing price in 2nd 2014 auction

With RGGI holding its 2nd auction of the year on June 4th and the EPA announcement earlier this week hinting at increased activity in the space, all eyes are on the US carbon trading arena.

Following the 2013 reform that saw prices jump from the price floor ($1.86) to the price ceiling ($4) in Q1 2014, tomorrow’s auction will be uncapped. Carbon trading experts from across the globe will be eagerly watching for the results of the auction and  leading market intelligence provider, ICIS, has provided its expert view ahead of the unique CO2 allowance auction. 

Commentary from Judith Schröter, global analyst, ICIS

“Smaller companies are less likely to hedge their positions, putting them at higher risk to carbon exposure as prices continue to climb. Thus medium and small utilities are expected to be short and they usually purchase allowances on auctions.

“Based on the current allowance holdings end of 2013, 23% (75m) of allowances are held by non-compliance entities. Some of the bigger compliance entities hold large amounts of allowances, while other still need to buy considerable volumes to be able to comply in 2015.

“In the next three auctions, 54m allowances will be offered. Provided that compliance players and speculative traders will continue their bidding strategy as in the last year, only around 50% (27m) of that volume will go to compliance players. With large volumes going to compliance players in the most recent auctions, many smaller players could remain short. This could make it more difficult to comply unless they participate in secondary market trading.

“Even with the overall system being oversupplied, some players might not be able to meet their compliance obligation due to unevenly distributed banked allowances and many players participating in the upcoming auctions.

“With the due date coming closer and having only two auctions left in the second half of 2014, smaller entities without banked volumes are forced to be price takers and will have to give high bids in order to receive allowances. Thus we expect the price to increase significantly from the closing price of $4 in the previous auction.”

About ICIS

ICIS is the world's largest petrochemical market information provider and has fast-growing energy and fertilizer divisions. Our aim is to give companies in global commodities markets a competitive advantage by delivering trusted pricing data, high-value news, analysis and independent consulting, enabling our customers to make better-informed trading and planning decisions. We have more than 30 years' experience in providing pricing information, news, analysis and consulting to buyers, sellers and analysts.

With a global staff of more than 800, ICIS has employees based in Houston, Washington, New York, London, Montpellier, Dusseldorf, Karlsruhe, Milan, Mumbai, Singapore, Guangzhou, Beijing, Shanghai, Yantai, Tokyo and Perth. Some 350 of ICIS’s staff are journalists engaged in reporting market prices and news, and ICIS is fully committed to upholding the highest journalistic principles of verification, corroboration and authentication. ICIS has a compliance framework that along with its methodologies and business processes adheres to the requirements of the IOSCO PRA Principles.

ICIS is a division of Reed Business Information, part of RELX Group.

About Reed Business Information

Reed Business InformationReed Business Information provides information and online data services to business professionals worldwide. Customers have access to our high-value industry data, analytics, information and tools. Our strong global brands hold market-leading positions across a wide range of industry sectors including banking, petrochemicals and aviation where we help customers make key strategic decisions every day. RBI is part of RELX Group plc, a world-leading provider of information solutions for professional customers across industries.

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