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Calif. carbon allowance prices ease despite increased trading volumes

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August

Calif. carbon allowance prices ease despite increased trading volumes

At the over-the-counter market, California carbon allowance prices stumbled during the week that ended Oct. 9 despite rising trading volumes.

According to broker data as of Oct. 9, the October 2017 vintage 2017 California carbon allowance contract was seen in a bid-and-offer spread of $15.14/tonne to $15.25/tonne, down 5 cents on the week.

The benchmark December 2017 vintage 2017 California carbon allowance futures contract was assessed in a bid-and-ask range of $15.20/tonne to $15.29/tonne, easing 4 cents from the week prior.

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SNL Image

Market sources said they expect to see more sizable moves in California carbon allowance prices over the next few weeks ahead of the upcoming Western Climate Initiative, or WCI, allowance auction scheduled for Nov. 14.

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 US$14.75/tonne, or $1.18 above the price floor of US$13.57/tonne and up from a clearing price of US$13.80/tonne in the prior sale. Also, 100% of the more than 9.7 million advance allowances were sold at US$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.

Ontario will become the third member of the WCI on Jan. 1, 2018, which will allow the three governments to hold joint auctions under the program. The Canadian province has already raised about C$1.5 billion through its solo allowance auctions. In the Canadian province's most recent carbon allowance auction held Sept. 6, approximately 25.3 million 2017 allowances sold at C$18.56/tonne each, while 3.1 million 2020 allowances were sold at C$18.03/tonne apiece.

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, natural gas index prices, as well as forwards and futures, visit our Commodities pages.