RGGI’s third auction of the year, held on September 4, cleared at a new record price of $25.75/short ton, with compliance buyers mopping up three-quarters of the permits on offer.

The auction cleared at ten times the reserve price ($2.56/ton), signaling that demand remains strong even after the market’s annual Cost Containment Reserve volumes had been exhausted in 2024’s first sale.

Secondary market prices reacted sharply to the news, with the December 2024 futures contract trading briefly above $27/ton on September 6 when the results were published.

By Wednesday this week, however, prices had fallen back to trade on either side of $25/ton. Some sources saw little profit in taking on new length at the higher levels, as regulators are not expected to publish a proposed update to the Model Rule before the upcoming election. With little concrete input upon the program review to work with, speculative traders are left relying on ongoing compliance buying for an upside driver.

Across the Atlantic, EU Allowance prices have slumped in the past two weeks by around 7% as steady selling in Europe's nat gas benchmark, the TTF futures, has dragged carbon prices lower.

2024 has been the year of the closest correlation in EUA and gas prices, with the current 5- and 10-day rolling correlation at around 0.9, and many participants believe that investment funds are hedging massive long positions in gas with short positions in EUAs.

The latest Commitment of Traders data from ICE and EEX showed that investment funds increased their overall net short position in EUAs from 6.7 million EUAs in the week ending August 30 to 14.2 million in the first e days ending September 6.

However, some trading analysts have turned bullish on EUAs at their current level of around €66.00, saying that while annual compliance demand will be weak ahead of the September 30 deadline, the approaching winter and the uncertainty over gas supply will encourage utilities to hedge early.

Indeed, the weakness in energy prices has been overdone, some say, and this should push EUA prices back towards and even above €70 as the end of 2024 comes closer.

Carbon Market Roundup

The global weighted price of carbon is $49.77, down 1.5% from the previous week. EUAs are down 2.5% for the week at €65.87, while UKAs are up 3.0% to £43.00. CCAs trended down 1.3% at $34.54. RGGI was down 6.7% at $24.34.