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Calif. carbon allowances extend higher to end January

Over-the-counter prices for California carbon allowances continued to climb during the week ended Jan. 30. The spot California carbon allowance contract was eyed in a bid-and-offer range of $13.50/tonne to $13.55/tonne, gaining 24 cents from the week before.

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The February 2017 vintage 2017 California carbon allowance contract was assessed in a bid-and-ask spread of $13.52/tonne to $13.58/tonne. The benchmark December 2017 vintage 2017 California carbon allowance futures contract was priced in a bid-and-offer range of $13.72/tonne to $13.82/tonne, up 19 cents on the week.

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California carbon allowance prices at the secondary market have been poised higher in recent weeks, with the latest round of support garnered from what market sources interpreted to be positive oral arguments Jan. 24 before the California Court of Appeals in Sacramento 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 a 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 that 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 by mid- to late April. Whatever the ruling though, it is expected that it will be appealed to the California Supreme Court.

Over-the-counter California carbon allowance prices have also been ticking 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.

In the Western Climate Initiative's prior quarterly auction held in November 2016, almost 77.0 million, or about 88%, of the more than 87.0 million current vintage allowances sold at the 2016 market floor price of $12.73/tonne. Additionally, about 1.0 million, or about 10%, of the more than 10.0 million vintage 2019 allowances on offer also were purchased at $12.73/tonne.

Formally linked under the WCI in 2014, the California and Quebec cap-and-trade systems cover emissions from utility and industrial facilities that 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 yearly emissions under the annual emissions cap. Carbon allowances are sold at quarterly auctions.

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.