RGGI I Carbon Market Forecast for r 2019 and Beyond RGGI Carbon - - PowerPoint PPT Presentation

RGGI I Carbon Market Forecast for r 2019 and Beyond

RGGI Carbon Market Forecast for 2019 & Beyond

ICIS Webinar, 12 September 10am 2019

Mason Henderson Senior Analyst, North America, ICIS Sunny Roe Market Editor, North America, ICIS

Agenda: RGGI Updates

TCI

Transportation Climate Initiative: Status and timeline

Federal

Carbon Bills in 2019 Democratic Presidential Candidates

Subnational

New Jersey Virginia Pennsylvania North Carolina

New Jersey

• Executive Order followed by regulation
• CO2 Budget Trading Rule
• Global Warming Solutions Fund

Linkage Review

• Cap Level: 18m tCO2e with 3% annual decline
• 2018 Emissions level: 19m tCO2e

Emissions

• 102 electric generating units with 36 power plants
• Natural gas 48%, Coal 1.6% and Petroleum .2%
• Not included: 45% Nuclear and 4.8% Renewable

Compliance Entities

Virginia

Linkage Attempt

• Previously expected to link by 2020
• Republicans introduced restrictive clause in state budget bill
• DEQ continued to finalize regulation

Future Potential

• Virginia House and Senate seats up for re-election in 2020
• Budget bill could be readdressed in January 2020, although unlikely
• Potential linkage: 2021 earliest possible

Pennsylvania

Leading to

• 2018 Climate Plan
• Governor Tom Wolf signed

Executive Order in January 2019

• greenhouse gas emissions

26% by 2025 and 80% by 2050 from 2005 levels

• Wolf recently mentioned

RGGI Petition

• Written by Clean Air Council

members and environmental law experts

• Economy-wide cap-and-trade

program

• Reserve price starting at

10tCO2e

• PA DEP accepted for review

Next Steps

• Meeting on October 1, 2019
• Detailed analysis of economy-

wide cap and trade

• DEP granted an extension
• Preparing two reports on

modeling impacts and emissions

• Completion expected by

January 2020

North Carolina

Executive order

• Governor Roy Cooper 2018

E.O. 80

• Establishes statewide GHG

reduction goals of 40% below 2005 levels by 2025

• In response, the Clean Energy

Plan was released Modeling Results

• Five separate scenarios for CO2

reduction

• Participation in RGGI, alone,

would result in the least amount of reductions

• Hybrid Approach: RGGI with

complimentary programs resulted in more reductions Next Steps

• The DEQ along with academia

will prepare a study of most cost-effective and efficient scenarios

• Public comment period for the

Clean Energy Plan closed on September 9, 2019

• NC DEQ to deliver plan to

Governor by October 1, 2019

Federal Carbon Bills Introduced in 116th Congress

Energy Innovation and Carbon Dividend Act, H.R. 763: Imposes a fee on CO2 content: petroleum and/or petroleum products, natural gas, coal and derivatives from any of those products, $15 in 2019, $10 annual increase; specified fee on fluorinated gases American Opportunity Carbon Fee Act, S.1128: Fee CO2 and other GHG emission to provide tax credits to workers; petroleum and/or petroleum products, natural gas, coal, fluorinated gases, other GHGs Climate Action Rebate Act, S. 2284: CO2 tax with funds generated in monthly rebate to all Americans; petroleum and/or petroleum products, natural gas, coal, fluorinated gases – reduced tax, solid biomass Stemming Warming and Augmenting Pay Act (SWAP), H.R. 4058: CO2 tax on emissions domestically produced and imported; petroleum and/or petroleum products, natural gas, coal, industrial products and processes Raise Wages, Cut Carbon Act, H.R. 3966: CO2 tax to reduce U.S. reliance on CO2 energy sources; petroleum and/or petroleum products, natural gas, coal, fluorinated gases American Wins Act, H.R. 4209: CO2 tax; petroleum and/or petroleum products, natural gas, coal, fluorinated gases Healthy Climate and Family Security Act, S.940: Cap-and-trade program; petroleum and/or petroleum products, natural gas, coal and solid biomass

Democratic Presidential Candidates and Climate Plans

Former Vice President Joe Biden: Ensure the U.S. achieves 100% clean energy economy and reaches net-zero emissions no later than 2050, would like to pass federal carbon pricing policy by 2025 New Jersey Sen. Cory Booker: Supporter of Obama-Era Clean Power Plan, expressed support for carbon pricing in past – including NJ rejoining RGGI; zero-carbon electricity by 2030; “It is the lens through which we must do everything” – every federal agency would have a climate policy South Bend, Indiana Mayor Pete Buttigieg: Supports carbon tax-and-dividend and supports major direct investment to build a 100% clean energy society Former HUD Secretary Julian Castro: $10 trillion climate plan includes fee on CO2; has expressed support for carbon pricing, but not a top priority California Sen. Kamala Harris: Released climate plan on morning of CNN climate town hall, $10 trillion climate plan, includes carbon pricing and

aims for a carbon-neutral US economy by 2045; target of 100% carbon-neutral electricity by 2030

Minnesota Sen. Amy Klobuchar: Co-sponsored Green New Deal resolution, plans on adopting federal carbon pricing program within 100 days of presidency; 100% net-zero emissions no later than 2050 Former Texas Rep. Beto O'Rourke: Net-zero emissions by 2050, only advocate for federal cap-and-trade system Vermont Sen. Bernie Sanders: 100% renewable energy for electricity and transportation by 2030 and decarbonization by 2050 latest; Green New Deal into action by investing $16.4 trillion in 10-year mobilization; plan does not include carbon pricing Massachusetts Sen. Elizabeth Warren: Supports carbon pricing, proposed several climate related policies, with goals to meet Green New Deal and Paris Agreement targets: Net-zero by 2050 and cut projected global emissions more than half by 2030. Andrew Yang, Businessman: Proposed $5 trillion plan that includes a carbon fee and dividend system; sets an initial carbon tax of $40/ton and create a border carbon adjustment to protect American goods

Transportation Climate Initiative (TCI)

• Collaboration of 13 jurisdictions working to create a cap-and-

invest program for the transportation sector

• Connecticut, Delaware, Maine, Maryland, Massachusetts, New

Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia and District of Columbia

What is TCI

• Held three public workshops
• One webinar during 2019 – released modeling results

Thus Far in 2019

• To test the model with various cap levels and policy designs in

the coming months

• To release draft policy proposal by December 2019
• Earliest possible initiation of program in January 2021

Moving Forward

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+ + = =

“If you have an apple and I have an apple and we exchange these apples then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.” – George Bernard Shaw

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RGGI Auction Review Emissions & Supply Fundamental & Traded Balances Price Forecast

RGGI I Carbon Market Update and Auction Review

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Price & Volume Current Auction Previous Quarter Previous Year Clearing Price $5.20 $5.62 $4.50 Volume Sold 13,116,447 13,221,453 13,590,107 Cover Ratio 2.9 2.8 3.2

Volume Bid For 38,037,696

37,020,068 43,488,342 Minimum Bid $2.26 $2.26 $2.20 Maximum Bid $8.00 $10.01 $6.20 Median Bid $5.07 $5.53 $4.40

RGGI Auction by the Numbers

• 2.50

5.00 7.50 10.00 12.50 15.00 17.50 20.00

< $5.07 $5.07-$5.20 > $5.20

Volume bid in Millions

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RGGI Auction by the Numbers

Current Auction Previous Auction Year Ago Auction # Bidders % Auction Won

Allowances Won

% Auction Won

Allowances Won

Change in % Won % Auction Won

Allowances Won

Change in % Won Compliance Oriented Entities 36 61% 8,001,033 38% 5,024,152 23% 61% 8,289,965 0% Investors w/ Compliance Obligations 11 6% 786,987 9% 1,189,931

• 3%

0% 6% Investors w/o Compliance Obligations 33% 4,328,428 53% 7,007,370

• 20%

39% 5,300,142

• 6%

Total

47 100% 13,116,447 100% 13,221,453 100% 13,590,107

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RGGI Auction by the Numbers

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[m tons] H1 2017 H1 2018 H1 2019 2017 2018 2019 (est) Emissions (tons CO2e) 28.9 33.1 26.1 64.5 71.0 64.8

Emissions Data

92.7 86.6 86.5 83.0 79.1 64.5 71.0 64.8

50.0 55.0 60.0 65.0 70.0 75.0 80.0 85.0 90.0 95.0 100.0

2012 2013 2014 2015 2016 2017 2018 2019

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[m tons] Current With NJ Change 2020 72.7m 90.8m +18.1m 2025 62.6m 78.4m +15.8m

Emissions Forecast

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Fundamental Bala lance (i (including NJ)

[m tons] 2019 2020 2021 2022 2023 Demand

• 64.8
• 90.6
• 91.2
• 87.9
• 84.6

Supply 55.7 72.3 75.6 72.9 70.1 Balance

• 9.1
• 18.2
• 15.5
• 15.0
• 14.5

Cumulative Balance 93.7 75.4 59.9 44.9 30.4

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Traded Balance (including NJ)

[m tons] 2019 2020 2021 2022 2023 Demand

• 70.6
• 97.6
• 90.9
• 85.9
• 79.0

Supply 52.1 68.8 72.3 69.6 67.0 Balance

• 18.5
• 28.8
• 18.6
• 16.2
• 12.0

Cumulative Balance 28.2

• 0.6
• 19.2
• 35.5
• 47.5

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Price Forecast ($/tonCO2e)

5.35 5.27 5.62 5.20 5.84 6.72 7.51 8.41 9.01 9.34 9.75 10.10 10.41

4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 Base Case High Case Low Case CCR ECR

Commitment of Traders (v18 and v19)

Total Open Interest Producers (Net) Money Manager (Net) Other (Net) Date Fut & Opt Contracts Fut & Opt Contracts Fut & Opt Contracts Fut & Opt Contracts Traders (v19) 1/15/2019 45,268 +12,571 +4580 23 4/30/2019 49,087 +13,367 +4714 25 9/03/2019 72,223 +9697 +4090 +3619 32 Net Change YTD +26,955

• 2874

+4090

• 966

+9

CFTC & ICIS

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Recent Pri ricing

5.00 5.25 5.50 5.75 6.00 6.25

2000 4000 6000 8000 10000 12000 14000 16000 18000 20000

Dec '19 v19

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Bullish Factors Tightening supply/demand fundamentals Bank adjustments NJ linkage Potential future linkages Investors Bearish Factors Banked emissions Renewable 2050 carbon neutrality Wildcards Legislative risk Elections Investors

Profits and Pit itfalls

Lead Analyst, North America, ICIS

sunny.roe@icis.com

Mason Henderson

Thank you!

Market Editor, North America, ICIS

Sunny Roe

mason.henderson@icis.com