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Secondary market prices for Calif. carbon allowances edge higher

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Secondary market prices for Calif. carbon allowances edge higher

California carbon allowance prices at the secondary market edged higher during the week ended Jan. 23. The latest broker data showed the spot California carbon allowance contract was pegged in a bid-and-ask spread of $13.24/tonne to $13.33/tonne, up 1 cent week over week.

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The January 2017 vintage 2017 California carbon allowance contract was eyed in a bid-and-offer range of $13.26/tonne to $13.34/tonne, also increasing 1 cent from the week prior. As of Jan. 23, the benchmark December 2017 vintage 2017 California carbon allowance futures contract was marked in a bid-and-ask spread of $13.55/tonne to $13.60/tonne, rising 2 cents on the weekly period.

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Market sources said secondary market prices for California carbon allowances could be edging higher ahead of the Feb. 22 carbon allowance auction to be jointly held by California and Quebec. At the sale, more than 65.1 million current vintage allowances will be offered on the auction block, while more than 9.7 million future vintage allowances will also be available. A $13.57/tonne price floor will be used in all of this year's auctions.

"Regarding the upcoming auction next month, a contemporary front price in the $13.50 region still looks plausible. This would likely be high enough to stimulate reasonable demand at the $13.57 price floor," according to analysts from CaliforiaCarbon.info.

The most recent price bump for over-the-counter prices was also due in part to the California Air Resources Board's release Jan. 20 of its Scoping Plan. To get California's greenhouse gas emissions 40% below 1990 levels by 2030, the agency is proposing to continue the state's cap-and-trade program and take a new path toward cutting emissions at refineries.

To reach the emissions reduction target called for by Gov. Jerry Brown in April 2015 and later codified in Senate Bill 32, the proposal would keep California's cap-and-trade program through 2030 and take a new approach to cut greenhouse gases from refineries by 20%.

While the plan examined alternatives like a carbon tax, an analysis found that cap-and-trade is the lowest cost, most efficient policy approach and provides certainty that California will meet the 2030 goals even if other measures fall short, the agency said.

A series of public hearings are slated to begin Jan. 27. Comments are due March 6, with a final plan set for release later that month. CARB will consider approving the plan in late April.

Elsewhere, the California Court of Appeals in Sacramento is hearing oral arguments Jan. 24 in the lawsuit challenging the auction component of the state's cap-and-trade system. In November 2012, the California Chamber of Commerce initially filed suit to invalidate the auctions on the basis that the process is an unconstitutional state tax, because it was not enacted by two-thirds majorities in both chambers of the legislature and A.B. 32 does not authorize the creation of such a process to sell emission allowances.

The case was consolidated with another, and the court upheld the CARB's authority over the cap-and-trade program, but petitioners appealed the decision to the Court of Appeal of the California Third Appellate District. A decision from the appeals court is expected to be handed down by mid- to late April. The ruling though could be appealed to the California Supreme Court.

In early January, California Gov. Jerry Brown called upon state lawmakers to pass legislation by a two-thirds vote that would confirm the CARB's authority to administer the cap-and-trade auction program beyond 2020. California lawmakers also recently proposed Assembly Bill 151, intended to confirm the CARB's authority to continue the cap-and-trade program beyond 2020.

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.