Dive Brief:
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A Potomac Economics report on secondary market activity for Regional Greenhouse Gas Initiative (RGGI) carbon dioxide allowances found no evidence of anti-competitive behavior.
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At the end of the second quarter, compliance-oriented entities held 122 million allowances, about 55% of the allowances in circulation, the report found.
- Prices for RGGI carbon dioxide allowance futures averaged $2.78, down 19% from the previous quarter and 46% from the same quarter last year, according to Potomac Economics.
Dive Insight:
As the market monitor for RGGI, Potomac Economics monitors secondary market activity for the initiative's CO2 allowances in order to identify anti-competitive behavior.
The secondary market gives entities the ability to purchase allowances in order to meet compliance targets between RGGI auctions. It also provides a mechanism for those entities to insulate themselves from future allowance price volatility.
However, as with any commodity market, there is also the potential that a firm could horde allowances in order to influence prices or as a means of preventing a competitor from obtaining allowances. The market monitor’s role is to watch the market for such anti-competitive behavior.
The market monitor evaluates the holdings of CO2 allowances, as well as demand for allowances to identify firms that may have acquired a position that raises competitive concerns.
The report found that many firms have significant “spreading positions,” that is, a combination of roughly equal long and short positions.
The report found that the top four firms accounted for an average of 78% of the total long positions in 2017 vintage contracts while 89% of net long positions were held by eight firms. The top four firms also accounted for 64% of total net short positions in 2017 vintage contracts while 82% of the net short positions were held by eight firms.