The New York Mercantile Exchange, Inc. announced that it will launch a Regional Greenhouse Gas Initiative (RGGI) carbon dioxide allowance futures contract on August 24.

The new futures contract will be physically delivered to the RGGI CO2 Allowance Trading System. It will be available for trading on the CME Globex electronic trading platform. Additionally, off-exchange transactions can be submitted for clearing via Nymex ClearPort. The size of the futures contract will be 1,000 RGGI CO2 allowances with a minimum price fluctuation of 1¢ per allowance.

Nymex will also list a RGGI options contract for August 26. The RGGI options contract will be an American-style option that exercises into the underlying RGGI futures contract. The options will expire three business days prior to the expiration of the underlying RGGI futures contract. There will be five strike prices in increments of 50¢ per allowance above and below the at-the-money strike price. The minimum price fluctuation will be 1¢ per allowance. The contract will trade on the Nymex trading floor. Additionally, off-exchange options transactions can be submitted for clearing via Nymex ClearPort.

December 2009 will be the first listed month for both the futures and options contracts, with additional contract months to be added.

The RGGI is a cooperative effort of ten northeastern states to reduce CO2 emissions. Participating states have pledged to reduce by 2010 greenhouse gas emissions to 10% below 1990 levels. RGGI states have put in place a regional cap-and-trade system to regulate CO2 emissions from power plants, and the trading of carbon allowances under this program has begun in the over-the-counter market. RGGI plans to begin quarterly auctions of allowances on September 25, and the launch of the Nymex RGGI futures and options contracts are expected to provide the market with a tool for hedging price risk.