UPDATE: CO2 Price In Northeast US Auction Hits Lowest Level

Allowances to emit greenhouse gases in the Northeast U.S. sold for $2.05 a ton in the latest auction held by a 10-state cap-and-trade program, falling to their lowest level yet.

Auction prices under the Regional Greenhouse Gas Initiative, or RGGI, continues to fall as a slump in power demand and weak natural gas prices drive an ongoing glut in allowances. But a coming global conference on climate change and a possible federal cap-and-trade programs likely kept the price from slipping to the lowest allowed level of $1.86 a ton of carbon dioxide.

"What is really driving the market is the politics of carbon," said Emilie Mazzacurati, manager of North American carbon market research for energy-market research firm Point Carbon.

RGGI places a limit on emissions from power plants of heat-trapping gases linked to climate change. Under the program, emission allowances are auctioned off, with power companies buying and selling them depending on their continuing emissions. States from Maine down to Maryland are members of RGGI, which is the nation's first market-based, mandatory cap-and-trade program for CO2.

The auction, results of which were released Friday, raised $62 million for the participating states. The money, which totals nearly $500 million to date, was earmarked in many states for efficiency and clean energy programs, but its use has come under pressure amid large budget gaps.

Auction prices reached their highest level for the year-old program in March clearing at $3.51 a ton. But since then prices have fallen with auction results this week more than 6% below the last auction held in September.

Mazzacurati said the RGGI market remains oversupplied and on track this year to have a more than 40 million-ton mismatch between the annual cap on which allowance auctions are based, and actual power plant emissions.

But she said the market is finding some price support from interest around international climate change talks in Copenhagen this month. Additionally, the way in which regional allowances would be incorporated into a federal CO2 program could benefit buyers at current prices, since an exchange under pending legislation would be based on an average price, Mazzacurati said.

"What we are seeing is the great return of the speculators," she said, pointing to an uptick in the auction in buyers that aren't power plant operators.

As for allowances that can be used for 2012 and beyond, the auction price this week settled at the lowest allowed level of $1.86 a ton. The auction also was undersubscribed.

A total of 28.6 million and 1.6 million allowances for 2009 and 2012, respectively, were sold in the auction. This week's auction was the sixth under RGGI. The next auction is set for March 10.

-By Mark Peters, Dow Jones Newswires; 212-416-2457; mark.peters@dowjones.com

Public Service Enterprise (NYSE:PEG)
Historical Stock Chart
From May 2024 to Jun 2024