In the latest quarterly auction of the Regional Greenhouse Gas Initiative, or RGGI, the cost for the right to emit a ton of carbon has again reached a new high. Speculation that more states could join RGGI could be driving interest in carbon allowances.
The announcement of the new EPA rules jazzed the latest RGGI auction. When the prices came out Friday morning, they were at $5.02 per ton of CO2, up from $4.00 in the last auction.
In the previous auction, the market had hit a “soft ceiling” at $4 a ton. This triggered the release extra allowances kept in reserve as a way to keep prices from spiking too high, all of which were snapped up by electrical generators and investors.
“After the last auction, the market was a little bit surprised when all of the allowances sold out,” says Ashley Lawson, a carbon markets analyst with Thomson-Reuters, “but after that we saw prices really stabilize at something like $4.50.”
But Thompson says because participation in the carbon cap-and-trade program could mean be a way for states to comply with the proposed EPA regulations, there has been much speculation that other states could wind up joining the program.
This meant high demand for CO2 allowances in the auction which was held on Wednesday, and continued interest from investors buying carbon allowances to sell them again later. This year about half of the allowances sold have gone to investment bankers.
“That’s one signal that the market is betting that more states means higher prices,” says Lawson, though she adds how prices would actually respond would depend a great deal on which states join and how high the carbon “cap” is lifted to compensate for the extra emitters. “It’s too soon to say anything about that.”
While $5 marks a new high in the Northeast, in the year-old California carbon market, carbon is trading for nearly $12 a ton.
The auction raised over $90 million which will be reinvested in energy efficiency in most New England states. That’s down substantially from a year ago when RGGI costs were more than $124 million and more allowances were on offer. It's up more than 20 percent from 2012, when allowances were selling at the floor price of $1.93 a ton.