RGGI’s 4th Auction: Allowance Prices Decrease for Both 2009 and 2012 Allowances

At the fourth auction of CO2 allowances under the Regional Greenhouse Gas Initiative (RGGI) on June 17, participation was certified as robust by market monitor Potomac Economics, but auction prices decreased. Last week’s clearing price for 2009 vintage CO2 allowances was $3.23 per allowance, only slightly above the clearing price of $3.07 at RGGI’s initial auction in September 2008, and below March’s clearing price of $3.51.  The 2.1 million 2012 vintage allowances offered for sale in last week’s action sold for $2.06, almost one-third below the $3.05 price that they earned at the March auction, which was the first at which these later vintage allowances were offered for sale.  

RGGI, Inc. has released the range of bid prices from the fourth auction, allowing some insight into how CO2 is valued by the players in these auctions.  Bid prices for the 2009 vintage allowances ranged from $1.86 (the minimum clearing price) to $12.00, up $2 from the maximum bid in the March auction, while bids for the 2012 vintage allowances ranged from $1.86 to $3.84, down from March’s high bid price of $4.40. Participation in the 2009 vintage offering remained high at 54 entities, while participation in the 2012 vintage auction was down from March’s 20 entities to only 13.

Interestingly, the share of non-compliance entities (persons not regulated under RGGI) who participated in the 2012 vintage auction rose this time, with only 62% of the bids submitted in that auction coming from compliance entities (power plants regulated under RGGI).  Even so, regulated generators and their affiliates continued the trend from previous auctions of winning the vast majority of the allowances – 85% of 2009 allowances and 81% of 2012.

The difference in the clearing price for the 2009 vintage and the 2012 vintage is not surprising. RGGI allowances may be banked without limitation and used in future years, making the 2009 allowances more valuable than later vintages.  What is notable is the drop in both participation in the 2012 vintage allowance and the clearing price (nearly 33% less than it was only 3 months ago). It seems that many market participants are uncertain about the value of the 2012 allowances, given the possibility that RGGI may be replaced by a national cap-and-trade program whose provisions are not yet known. 

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