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Essential Energy Insights - October 2021


Calif. carbon allowance prices climb ahead of compliance deadline, auction

Secondary market prices for California carbon allowances swung higher during the week ended Oct. 16, with gains driven in part by buying ahead of an impending compliance deadline.

Broker data shows the October 2017 vintage 2017 California carbon allowance contract pegged in a bid-and-ask range of $15.33/tonne to $15.41/tonne, increasing 17 cents week over week.

The benchmark December 2017 vintage 2017 California carbon allowance futures contract was quoted in a bid-and-offer spread of $15.39/tonne to $15.45/tonne, also rising 17 cents from the week before.

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Market sources said the advance in over-the-counter California carbon allowance prices is likely due in part to the approaching Nov. 1 compliance deadline. At that time, entities under the California cap-and-trade program must submit 30% of their compliance obligation for the prior year's emissions.

Prices at the secondary market for California carbon allowances are also likely gaining some upside traction in front of the upcoming Nov. 14 Western Climate Initiative, or WCI, allowance auction.

At the November WCI carbon allowance auction, more than 79.5 million current vintage allowances and more than 9.7 million advance vintage allowances will be placed on the auction block. The current auction offering will consist of more than 15.9 million vintage 2016 allowances and more than 63.6 million vintage 2017 allowances.

At the WCI's quarterly sale in August, 100% of the more than 63.8 million current vintage allowances sold at a record high of $14.75/tonne, or $1.18 above the price floor of $13.57/tonne and up from a clearing price of $13.80/tonne in the prior sale. Also, 100% of the more than 9.7 million advance allowances were sold at $14.55/tonne.

The California Air Resources Board said compliance entities purchased 95.8% of the current vintage allowances and 87.5% of the future vintage allowances in the August auction. Demand was strong, with both the current vintage and the future vintage auctions oversubscribed, with a 1.79 bid-to-cover ratio and a 1.84 bid-to-cover ratio, respectively.

Under the WCI, the California and Quebec cap-and-trade programs were formally linked at the start of 2014, with their first joint sale held in November 2014. During the combined allowance auctions, entities registered under Quebec's system may participate in joint auctions in either U.S. dollars or Canadian dollars.

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.