RGGI Carbon Auction Sells Out, Generates $94 Million

The 48th quarterly carbon auction of the Regional Greenhouse Gas Initiative, the nation’s first mandatory cap-and-trade program to cut power sector emissions, sold more than 16.3 million carbon allowances at a clearing price of $5.75. The auction generated about $93.9 million, bringing the total proceeds to nearly $3.6 billion.

The clearing price was slightly higher than the previous auction’s price of $5.65. Clearing prices have improved since the June 2017 RGGI auction, when prices dropped to their lowest level, marking a sharp turn from the December 2015 auction which had reached a record high. RGGI’s market-based approach sets an annually declining limit on carbon emissions and allows polluters to buy or sell permits. RGGI now has 10 member states following the re-entry of New Jersey, which participated in the auction for the second time in almost a decade after finalizing regulations to rejoin the compact last year.

RGGI’s secondary market report issued in May shows that there was a significant increase in trading activity and open interest in RGGI futures and options contracts in March as the responses to COVID-19 impacted projections of electricity consumption and allowance demand. The volume of futures trading was 45.1 million allowances in the first quarter of 2020, up 44 percent from the first quarter of 2019. Due to the increase in trading volumes in March, open interest in futures rose to 90.7 million allowances from 74.8 million allowances during the first quarter.

In the June auction, compliances entities – firms with compliance obligations – purchased 62 percent of the allowances sold. Compliance-oriented entities, which acquire and hold allowances to meet their obligations, bought 31 percent of the permits. None of the 11.8 million cost containment reserve, or CCR, allowances were sold. The CCR is a fixed additional supply of allowances that are made available for sale if allowance prices exceed certain price levels.