The RGGI power grab

The underappreciated beneficiary of surging electricity demand in the US northeast

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The benchmark RGGI carbon futures contract has increased by ~40% since the start of the year to almost $23 per tonne - by far the best performing compliance carbon market of 2024.

Three factors are behind the surge in the cost of carbon in the northeast US regional compliance market: drought conditions in Québec affecting hydroelectric power flows into the US northeast, surging power demand forecasts due to expected high temperatures and data centre expansion, and the exhaustion of the RGGI strategic reserve of emission allowances (the so-called Cost Containment Reserve, or CCR).

“Battery of the US northeast” running on empty

During both February and March 2024, Canada imported more electricity from the US than it exported. Canada is usually a net exporter as hydroelectric facilities send power south of the border. However, a prolonged drought in Canada and reduced water volumes available to its hydroelectric plants led to a sharp drop in power generation (down >15% year-on-year).