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Secondary Calif. carbon allowance prices ease slightly ahead of year's end

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Secondary Calif. carbon allowance prices ease slightly ahead of year's end

Over-the-counter prices for California carbon allowances eased a touch during the week ended Dec. 13 in active year-end trading. According to data as of Dec. 13, the spot California carbon allowance contract was assessed in a bid-and-ask spread of $12.76/tonne to $12.83/tonne, easing 1 cent from the week prior.

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The December 2016 vintage 2016 California carbon contract was marked in a bid-and-ask spread of $12.76/tonne to $12.83/tonne as well, also down 1 cent as of the week ended Dec. 13.

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Market sources attributed the end of year uptick in activity, in part, to the expected increase in the California allowance auction reserve price to $13.57/tonne that will go into effect in 2017. The auction reserve price will rise from $12.73/tonne in 2016 due to the state's cap-and-trade regulations, which stipulate that the price is the value for the previous calendar year increased annually by 5% plus the rate of inflation as measured by the most recently available 12 months of the Consumer Price Index for All Urban Consumers. The rate of inflation used to calculate the 2017 market floor price was 1.64%.

Linked in 2014, the California and Quebec cap-and-trade systems cover emissions from utility and industrial facilities, which emit more than 25,000 tonnes of carbon each year. Those facilities must purchase either state carbon allowances or carbon offsets to account for their annual emissions under the annual emissions cap.

Carbon allowances are sold at quarterly auctions. In California, up to 8% of an entity's emissions can be covered using offset credits from certified projects. Carbon offset credits, as well as carbon allowances, can be purchased in the secondary market.

The first phase of the program included all major industrial sources, along with electric utilities. The second phase of the cap-and-trade program kicked off in January 2015 and brought in distributors of transportation fuels and natural gas under the caps. The second compliance period ends Dec. 31, 2017.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.