California defends climate initiatives amid federal backlash; CCA market faces volatility

The California carbon allowance market has faced volatility amid federal backlash against its cap-and-trade program, yet California remains steadfast in its climate initiatives, leading to ongoing fluctuations in prices.

The California Air and Resources Board plans to push back against US President Donald Trump administration's attack on climate initiatives, its chair said during a May 7 briefing.

CARB chair Liane Randolph said the administration's April 8 executive order, which called for Attorney General Pam Bondi to identify state laws addressing climate change and to take action to halt them, was a "broad attack" during the media briefing on the California climate investments annual report.

Randolph called the executive order, titled 'Protecting American Democracy from State Overreach,' a "glorified press statement, with no defined next steps."

Randolph also emphasized the importance of mitigating the effects of climate change.

"If the administration goes after our programs in court, we will defend them rigorously," she said.

The government's move raised concerns in the market for potential federal interventions that could undermine California's ambitious climate policies.

"The [executive order] is still affecting things and will for the foreseeable future," a New York-based trader said on April 30, 22 days after the executive order was issued.

California looks to extend program

The California cap-and-trade program has been up for review and reauthorization past its current expiry date of 2030.

CARB declined to comment on a timeline regarding the cap-and-trade program extension, during its May 7 briefing.

Governor Gavin Newsom announced April 15 a collaborative effort with legislators to seek reauthorization of the cap-and-trade program.

The announcement was "bullish for the market as it provides some level of certainty that they are ready to fight for the program to survive and plan on extending it," the New York-based trader said.

A week later, California Assemblymember Jacqui Irwin expressed interest in not only reauthorizing the cap-and-trade program, but also reviewing it, she said at the California Climate Policy Summit on April 22.

Irwin also wanted the legislature to evaluate the effectiveness of the program and identify areas for improvement.

"It is imperative, during discussions of reauthorization, that we examine the different mechanisms in the cap-and-trade program to ensure that we are maximizing emissions reductions and affordability benefits to Californians, while making sure that it continues to deliver the tangible results that the program has promised from the outset," Assemblymember Irwin said in a statement to Platts

Looking forward, some legislators will likely be more cautious about extension, Matthew Williams, analyst at S&P Global Commodity Insights, said.

"However, they may be in the minority given the announcement from Newsom, McGuire, and Rivas that extension will be sought despite the Trump administration's April 8 Executive Order," Williams added.

Volatility amid uncertainty

Pricing within the California market has increased in volatility in the last month due to the ongoing tensions between the California and federal governments.

Trump's executive order caused CCA pricing to fall 9% on April 9, as Platts, part of S&P Global Commodity Insights, assessed the CCA Next- December Strip Current-Year Vintage Strip price at $27.26/allowance.

Less than a week later, Governor Newsom's announcement seeking program renewal caused prices to tick slightly higher on the day, with the state's support reassuring the market.

CCA Next- December Strip Current Year Vintage Strip rose 4% on April 15 to $27.64/allowance.

Intraday volatility during April ranged between minus 9% and 4% for the CCA Next-December strip, up from minus 3% and 2% during March.

The price was last assessed at $28.20/allowance on May 9.

Looking forward, the New York-based trader does not think the Trump administration is done trying to slow down or break apart these markets and added, "I think the reality is most of the actions they will take will lead to long term legal battles, causing uncertainty in the markets."