Last week’s auction of CO2 allowances by the Regional Greenhouse Gas Initiative (RGGI) was the 23rd in the program’s history, but the first auction under the new RGGI rules and reduced cap.  The new rules undoubtedly explain why the auction yielded the highest sales price in RGGI history — $4 per allowance.  Even more notable, it was the first auction where the clearing price was high enough to trigger the cost containment reserve (CCR).  The CCR, which was intended as a safety valve to keep allowance prices from spiking, was introduced in the 2013 changes to RGGI, and last Wednesday’s auction was the first where it could have come into play.

The CCR is a fixed supply of allowances, separate from the annual RGGI Program CO2 Budget, which are only available for purchase if allowances prices pass over a designated level ($4 in 2014, $6 in 2015, and on in a similar fashion to $10 in 2017 and rising 2.5% per year afterwards).   When the clearing price for the 18,491,350 allowances offered for sale by the 9-state regional organization reached $4 last week, it triggered the availability of an additional 5,000,000 allowances, which also sold out at $4 a piece.  However, there are no more CCR allowances available for sale in 2014.  It is therefore likely that the three auctions yet to come in 2014 will see even higher prices than this, since the CCR pressure relief valve will no longer be available.

Interestingly, the Market Monitor Report indicates that only 45% of the allowances were purchased by the electric generators actually regulated under RGGI or their affiliates, indicating that, yet again, the investment community is buying up RGGI allowances.  A market does appear to be developing.