California-Quebec carbon Q3 auction settles above expectations, fully sells out

The California-Quebec joint cap-and-trade program's third-quarter 2025 auction settled higher than expected after hitting the floor price in the previous quarter, California Air Resources Board data showed Aug. 27.

Auction 44 settled at $28.76 per allowance, up 11% from Auction 43 when the settlement cleared at the floor price for the first time since August 2020. Auction 44 took place Aug. 20, and results were released Aug. 27.

"This is definitely a welcome development for California and Quebec after Q2's undersubscription," S&P Global Energy analysts Aldo Muller and Matt Williams said Aug. 27. "Prices settled over a dollar above our expectations. Now, if the Q4 auction settles above the price floor, those unsold allowances from Q2 will be put back on offer."

In the second quarter, just 43.8 million of the offered 51 million current-year vintage 2025 allowances sold in the May auction. Allowances owned by California that remain unsold for more than two years are transferred to the Allowance Price Containment Reserve for use when an auction settles at the price ceiling.

The second-quarter auction cleared at the floor price of $25.87/alw, which is the lowest since the third quarter of 2021 and represented a 12% drop from the first quarter of 2025 and a 30% drop year over year. The first-quarter auction also cleared at multiyear lows, the first time in the history of the program that the first-quarter auction settled lower than the preceding fourth-quarter auction.

In the third-quarter auction, all of the offered 51.88 million current-year vintage 2025 allowances were sold, with nearly 85% purchased by compliance entities.

One trader said the auction likely cleared higher than expected due to a decent amount of compliance buying

"Probably to hedge against a big move up if strong bullish changes get enacted this session," the trader said. "Reaction has been to the upside but nothing crazy."

Energy expected an auction clearing price somewhere between $27-$27.50, "perhaps an overcorrection given the overestimation of the previous auction," Muller and Williams said in the latest North American Emissions Bulletin.

The third-quarter auction settlement also cleared at a slight 0.1% premium to the secondary market on auction day, according to Muller and Williams.

Platts, part of Energy, assessed California carbon allowance current-month strip costs on the secondary market at $28.41/alw on Aug. 27.

In the advance auction of vintage 2028, all of the 6.8 million allowances were sold, with nearly 80% purchased by compliance entities. The advance auction cleared at $28.50/alw.

Denied extension proposal

California carbon allowance prices fell in the morning before the third-quarter joint auction results were posted from program extension language not added to Assembly Bill 1207.

The California Senate declined an extension proposal of the state's cap-and-trade program to be added to AB 1207 by Assemblymember Irwin, according to Politico.

Irwin's office was not immediately available for comment.

Language to extend the cap-and-trade program past its sunset of 2030 was seen in an amended version of AB 1207 on Aug. 18.

"People probably went into the auction thinking that the extension is going to happen but now it's not that clear," a broker said.

A program extension proposal needs to be done this week, with committee proceedings ending on Aug. 29, the broker added.

"It seems like these 'backdoor negotiations' we've been hearing about for a while are not going anywhere," the broker said.

Trades for the December contract dipped as low as $28.81/alw in Aug. 27 trading before rising to $28.84/alw before the market close at 1:30 pm CT.

Platts assessed the CCA December strip at $28.82/allowance on Aug. 27, down 10 cents on the day.