The RGGI benchmark contract settled at USD 14.82/st on Thursday (30 Nov) – down 0.5% (USD 0.08) week-on-week. The RGGI contract continued to settle within a narrow range this week – fluctuating within a USD 0.08 margin. The lack of volatility in the contract price this week is reflective of a lack of regulatory updates from the Third Program Review which is set to conclude at the end of this year. Volume traded for the front-December continued to climb this week – totaling 7.6 Mst, up 72% week-on-week. The spike in total volume traded in the past few weeks can be attributed to the approaching expiry of the front-December contract and market participants beginning to roll over to the 2024 contract.

The RGGI benchmark contract has been largely driven by regulatory factors over the past several months. The anticipation of future allowance budgets cuts that will come from the conclusion of the Third Program Review has played a role in pushing the front-December contract into record-breaking highs in Q3 and Q4. In the Third Program Review, regulators are considering a series of updates to strengthen the regional carbon market – namely zeroing-out allowance supply by 2035 or 2040 and implementing one-year compliance periods in lieu of the current three-year periods. Although being bullish for contract prices in the long-term, the presented updates to the program have not had a lasting impact on contract prices. RGGI regulators have stated their intent to finish the review by the end of 2023 and implement the changes by 2025 but have not announced any agenda for the concluding steps to stick to this timeline. As we enter December, market participants have grown skeptical of the end-of-year completion which has left them largely disengaged in the market.

As the front-December contract nears expiry, many market participants are rolling their positions to the V24 Dec-24 contract. The high volumes traded for the front-December contract this week reflect market entities’ settling their end-of-year accounts. The anticipation of fewer, more expensive allowances on the horizon as a result of the Third Program Review also plays a role in driving up long positions for the contract before the year closes. As open interest for the V23 Dec-23 contract subsequently declines, open interest for next year’s benchmark contract has risen 17% week-on-week.

Although the benchmark contract for the California-Quebec market saw a similar trend in price this week, it is unlikely that has influenced the downward trend in the RGGI contract. The front-December contracts in the two North American markets have been tied in recent weeks as gains in the CCA contract following the California-Quebec joint regulatory workshop spilled over into the RGGI market due to sympathy trading. The regulatory buzz in the WCI market has sense eased and any spillover trading between the two markets has gone down with it.

 for the RGGI market will be conducted on 6 December. Just over 22 million V23 allowances will be offered at the Q4 auction – with Virginia and New York having the largest share at 23.9% and 22.9% of allowances respectively. This is also set to be Virginia’s last auction before exiting the regional carbon market at the end of this year. Despite its planned exit, the state will still comply to the March compliance deadline and is therefore still expected to purchase all of the 5.3 million allowances on offer. The front-December contract had been trading at levels above the Cost Containment Reserve (CCR) Trigger Price of USD 14.88/st for the majority of last week and is currently trading at levels just below USD 14.88/st. Likely to clear at an all-time high, it is even possible that the Auction Clearing Price may hit the Trigger Price, which would mean there would be a Reserve sale where the 11 million allowances in the CCR could be up for bidding.

RGGI contract prices have a bearish outlook for the coming week. Market participants will likely attempt to pressure down the front-December price in the days preceding the Q4 auction on Wednesday (6 Dec) to try to influence a lower Auction Clearing price. Furthermore, the lack of any regulatory updates coming from the Third Program Review will continue to spur off market activity – maintaining the tight settlement price margins seen in the past several weeks. Although cooler temperatures are expected in the Northeast next week, they are unlikely to play a role in contract prices.

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