W11: RGGI Price Graph

This week saw a 2.03% week-on-week decrease in the RGGI V23 Future Dec-23 contract price. The benchmark contract settled at USD 13.01/st this Thursday (16 Mar), down USD 0.27 from last Thursday’s (9 Mar) settlement price of USD 13.28/st. The trend in price seen this week comes in response to the Silicon Valley Bank and Signature Bank failures and to a low auction clearing price released in the publication of the Q1 auction results.

results of RGGI’s first auction of 2023

 were published this past Friday (10 Mar), showing an auction clearing price of USD 12.50/st. The results were in line with the expectation that the clearing price would be within a slight discount to the front-month contract, which settled at 12.59/st the day prior to the 8 March auction. This is the lowest auction clearing price for RGGI since September 2021. The auction result comes during a period of minimal market participation and regulatory uncertainty. The legal proceedings regarding Pennsylvania and Virginia’s status in RGGI, coupled with a mild winter throughout the RGGI member states, have resulted in low allowances prices and minimal speculative behavior, which influenced low Q1 auction results.

All of the 21,522,877 allowances offered at Auction 59 were sold, 82% of which were purchased by market entities with compliance obligations. The turnout of non-compliance entities was the lowest since the December 2021 auction – with 21 bidders. The low non-compliance turnout is reflective of low speculative interest by financial entities that has been predominate throughout 2023.

News of the failure of Silicon Valley Bank last Friday (10 Mar) and Signature Bank on Monday (13 Mar) can be attributed to the decrease in the benchmark contract price on those respective days. The contract dropped a total of USD 0.27 over the course of Friday and Monday to a settlement of USD 13.01/t on Monday (13 Mar). Volume traded also reached a two-month high on Friday and Monday, with 2.525 Mst and 1.658 Mst traded respectively, which comes as a result of risk-averse behavior by financial entities in response to the bank closures. Initial fears of a spiraling effect in the banking sector did not seem to last long for financials as prices recovered later this week, indicating that government assistance will mitigate a lasting impact on the market.

Last week, Republican lawmakers introduced legislation that would require much more stringent measures in order to pass climate legislation in Pennsylvania. The legislation would hinder the state’s ability to enter a regional carbon market or implement a carbon tax that does not stem from a federal requirement. Any carbon pricing system would require extensive economic and environmental research and go through a long period of input from the public before seeking approval from the General Assembly. The possible adoption of the legislation is largely contingent upon the support of Governor Shapiro. The newly elected governor has yet to take a definitive stance on the state’s RGGI membership, but as this piece of legislation makes headway, the governor will likely have to decide where he stands on the matter. This will be important for the market as the uncertainty in the state’s future RGGI membership has been a major reason why there has been minimal market participation by financial entities. A stance in favor of RGGI by Governor Shapiro would be bullish for the market as it would increase confidence for investors, which has been lacking in recent months.

The benchmark contract will likely remain within the low USD 12.90-13.20/st price range next week. The low auction clearing price released late last week will continue to play a role in keeping the contract price down. Warm weather conditions throughout the Northeast next week will keep allowance demand low and subsequently mitigate any notable spikes in the contract price. An announcement on where Pennsylvania Governor Josh Shapiro stands on the recent legislative attempts to block RGGI will have significant impacts on the RGGI market, but when he will make a stance is unclear.

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Week 11: RGGI V23 Future Dec-23 contract prices drop as low Q1 auction price is published

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