Volatile RGGI carbon prices as Virginia's Governor continues to push to leave the scheme

Carbon prices on the Regional Greenhouse Gas Initiative (RGGI) fell by almost 10% yesterday after a report released by Virginia Governor Glenn Youngkin criticised the emissions trading scheme for being ineffective and forcing consumers to pay more for their electricity.

However, what appears to have unnerved the market and led to a flood of compliance selling is the inclusion of an emergency regulation blueprint detailing how the state would leave the 11-state carbon trading scheme. Recall that earlier in the year the Governor signed an order to leave RGGI, and despite being unable to unilaterally withdraw from RGGI without the support of lawmakers, the Governor continues to make claims that he can.

Virginia accounts for around 27% of current RGGI emissions and also has significant scope for reducing its emissions. Given its size and emissions profile it would be extremely negative for RGGI carbon prices should the state of Virginia succeed in extricating itself from the scheme.

Although the world’s largest carbon futures fund (KRBN) currently allocates some 5% to RGGI, other more recently launched funds hold a significantly larger allocation to the scheme. Negative sentiment in RGGI contributed to a sharp decline in California Carbon Allowance (CCA) prices.

It’s an important market for investors to follow.