Next auction to include same allowance volumes as Q3
Trader expects prices to drop further
Regional Greenhouse Gas Initiative carbon allowance prices have dropped more than 20% from record highs set this summer after a delay in market regulatory changes spurred a selloff in late September, according to price assessments by Platts, part of S&P Global Commodity Insights.
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While RGGI current-month current-year vintage prices rose 4.5% on the day on Oct. 10, allowance prices have dropped significantly from record-highs established this summer. The latest Platts assessment showed current-month current-year vintage allowances trading at $19.83/allowance, down 22% from the latest compliance auction in the third quarter on Sept. 6, marking the highest clearing price in the program’s history.
RGGI will offer a similar number of allowances in the fourth-quarter auction at 15.9 million on Dec. 4, the program said in its Oct. 8 Auction 66 notice.
Although prices were expected to fall in the fourth quarter, they were falling more than expected, Commodity Insights analyst Matt Williams said.
One primary driver of the sharp decline in prices was an apparent delay in regulatory updates to the market. RGGI released a program update on Sept. 23 that appeared to push back its timeline on adopting new emissions caps for participating states by two years, causing prices to drop about 13% on the day. The last Platts assessment before the selloff was $24.61/allowance, and prices have dropped 19% since then as of Oct. 10.
Williams previously said RGGI market participants were likely looking for a reason to sell off, saying “high prices were never going to last.”
A New York-based trader told Commodity Insights he believed prices were potentially headed toward $17/allowance by the time of the first-quarter 2025 auction if rule changes are not announced by then.
Prices could remain above $17/allowance for the remainder of the year, remaining slightly elevated from the potential for new program updates and the potential for a cold winter, the trader said.
Prices began to climb earlier this year in the program when the first-quarter 2024 auction depleted all of 2024’s dedicated 8.4 million cost containment reserve allowances. The CCR allowances are released when an auction’s clearing price reaches a ceiling called a “trigger price.” The 2024 CCR trigger price is $15.92/allowance, and the trigger price increases by 7% each year.
Since next year’s CCR trigger price will be $17.03/allowance, it would make sense for prices to trend in that direction until more concrete updates come from RGGI, the same trader said. As costs remain elevated, the latest clearing price assessment by Platts breaches the would-be CCR trigger price of $19.50/allowance in 2027.
The upcoming Auction 66 on Dec. 4 is the last auction in the 2024 interim control period. Compliance entities will be required to surrender CO2 allowances by the March 3, 2025, deadline.