RGGI Allowance Prices Are Off the Floor Again
In response to the RGGI State’s updated Model Rule, in which a 45% cap reduction was proposed, RGGI allowances sold at $2.80 in the 19th Auction on March 13th, 2013. As shown in the figure, the 19th Auction’s clearing price is the highest price since June 2009. The spike in demand for RGGI allowances signals a revived perception that the future cap will be binding and allowances will be scarce.
The increase in the value of allowances will drive further emission reductions on two fronts. First, the increase in allowance prices results in an increase in auction proceeds, which the states use to fund energy efficiency and renewable energy projects. These strategic expenditures will lessen the demand for fossil fuel generated electricity. Second, the increased value of allowances makes it more costly to emit, creating an incentive to use lower-emitting resources.
In brief summary, the updated RGGI Model Rule calls for:
- Reducing the 2014 cap from 165 MT to 91 MT, with a 2.5% annual reduction through 2020
- Interim Adjustments, in which the cap is further reduced over the next 7 years to compensate for the large surplus of privately held allowances rolling into 2014.
- Creating a Cost Containment Reserve (CCR) that will start with a $4 trigger price in 2014 and rise to $10 by 2017.
- Retiring unsold allowances from 2012 and 2013.
- Interim True-Ups, in which regulated entities are required to possess allowances to cover at least 50% of their annual emissions for the first two years of the 3-year control period.
For more information:
RGGI Model Rule: http://www.rggi.org/design/program_review
19th Auction Results: http://rggi.org/docs/Auctions/19/Auction_19_Market_Monitor_Report.pdf
*Quarterly Emissions show the emissions from the month of the auction plus the emissions from the previous two months. This data was taken from the EPA’s CAMD emissions database. The dataset used only spans from 2009 to 2012. http://ampd.epa.gov/ampd/
** The figure only shows current allowance sales and offerings and does not show future allowance sales and offerings. The auction results data was taken from RGGI.org, see http://rggi.org/market/co2_auctions/results.