californiacarbon.info Newsdesk, December 6, 2013:
RGGI Auction 22 oversubscribed at 2.7 to clear at $3.00
The 22nd Regional Greenhouse Gas Initiative (RGGI) auction took place on Dec 4, with the results being published today. With 2.7 bids to every allowance on offer – the highest subscription rate since the first two auctions over five years ago - the auction cleared at $3.00 for every permit. This represents a 12.4% increase upon the $2.67 seen at Auction 21 in September, and is the second-highest clearing price since 2009 (June’s Auction 20 cleared at $3.21 even with a lower rate of subscription).
A total of 38,329,378 allowances were auctioned this week, a small decrease from the 38,409,043 in September. There were 55 potential bidders, and only 43% of these allowances went to compliance entities, the smallest proportion ever recorded in RGGI history. This might suggest a larger financial service provider presence at the auction than before, which could in turn indicate rising investor confidence in the future of the market scheme. Given the widely-touted observation that RGGI has managed to reduce greenhouse gas emissions while promoting economic growth among member states, as well as the supposition that the EPA’s proposed 111(b) and 111(d) power plant regulatory standards are likely to turn states towards systems modelled upon RGGI if not RGGI itself, a rise in positive sentiment would not be much of a surprise. The next auction will take place in March 2014.
Quebec auction disappoints
With the full market linkage between California and Quebec coming into effect on Jan 1, 2014, many in the Golden State had been eagerly looking ahead to the Canadian province’s inaugural auction for any conclusions that may be drawn. Anyone looking for positive demand or price signals would have been somewhat disappointed.
The results of the first Quebec auction, which was conducted on Tuesday, Dec 3, were made public earlier today. Both the 2013 and 2016 vintages were undersubscribed and cleared at the floor price of CAD10.75, or roughly USD10.10, which is some 5.7% below the Californian floor of $10.71 (to rise to $11.48 in 2014, putatively the first year of joint auctions). Of the 2,971,676 2013-vintage allowances on offer this week, only 1,025,000, or 34.5%, were taken up. An even lower proportion of the V2016s sold – 1,708,000 of 6,319,000, or 27.0%.
With its 1.85 and 1.64 rates of subscription for the 2013 and 2016 vintage allowances respectively (upon offerings of 16.6 million and 9.56 million), the unfulfilled demand in California would easily have wiped out the oversupply in Quebec. Yet there is the sense that these auction results reflect market caution more than a lack of demand. This was the first-ever Quebecois auction, and might possibly even be the only one before California and Quebec combine their platforms (although mid-year is a more realistic expectation), and a wait-and-watch approach may explain why true demand failed to materialise even as the market looks ahead to a raised Californian price floor for 2014. With steeper targets to meet than California’s (a 20% reduction upon 1990 levels rather than mere parity), the notion remains that Quebec, small a market though it is, will be a net buyer of allowances and offset credits as the linkage matures.