California, Quebec joint cap-and-trade auction price is premium to secondary market

The current vintage price in California and Quebec's 30th joint cap-and-trade auction rose 3.1% to a new record, while the advance vintage price slipped 42%, the entities announced Feb. 24.

The current auction clearing price of $29.15/mt is in line with what S&P Global Platts Analytics anticipated, which was at or slightly above secondary market prices due to lower allowance on offer relative to most of 2021 and secondary market pricing consistently falling heading into auction day itself.

The settlement price represented a $1.71, or 6%, premium to the secondary market on auction day, and a $1.33 premium compared to pricing since the auction, according to a Feb. 24 Platts Analytics bulletin. This could mark a comeback for California Carbon Allowances as the fourth quarter 2021 auction cleared at a discount to secondary pricing.

"This premium to the secondary market is in stark contrast to the Q4 2021 auction, which settled 17% below the secondary market at the time," said Matt Williams, emissions and clean energy analyst at Platts Analytics. "This certainly weighed on contract prices heading into auction day. Less allowances on offer in Q1 2022 relative to the 2021 auctions also contributed to the high auction clearing price."

The advance vintage auction price for 2025 settled at $19.70/mt for 2025.

All 58,527,697 current auction allowances were sold during the Feb. 16 auction, while 7,079,000 of the available 7,942,750 advance auction allowances sold, according to the auction data.

This was the first advance auction to not sell out since May 2020, Platts Analytics said in the bulletin. The unsold allowances, approximately 0.86 million, will not be re-offered until 2025 as part of the current auction. The remaining advance auctions of 2022 will each offer 7.9 million V-25s for sale.

Compliance bidders

The had 126 qualified bidders, down 14 from the August auction. Ninety of the bidders were from California and 36 from Quebec, while nine new bidders registered.

"The proportion of current vintage allowances won by compliance players was 86.5%, suggesting lower speculative demand relative to the last several auctions," Platts Analytics said.

This is a slight bump from last quarter's 81.3% and a substantial improvement over the recent all-time low of 67.5% in August 2021, Platts Analytics said.

"The median percentage of allowances awarded to compliance entities is around 92%," according to Platts Analytics. "Inversely, the 86.5% implies speculators took home 13.5%, around 7.9 million allowances"

This is lower than the estimated 12.8 million allowances speculators brought home in the last auction.

"Interestingly, compliance entities won only 81.6% of future vintages that were sold, lower than last quarter's 88.1% and the historical average of around 85%," Platts Analytics said. "Still, given the undersubscription of the Advance Auction, speculators were awarded only 1.3 million V-25s."

The California Cap-and-Trade Program and the Québec Cap-and-Trade System are linked, enabling the mutual acceptance of compliance instruments issued by each jurisdiction to be used for compliance with each program. As part of California's Cap-and-Trade Program and the Québec Cap-and-Trade System, the California Air Resources Board and Québec's Ministry of the Environment and the Fight against Climate Change hold joint greenhouse gas allowance auctions to allow market participants to acquire GHG allowances.

In addition, California may offer quarterly sales of allowances from the Allowance Price Containment Reserve.