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Calif. carbon allowance prices recover due to increased trading

After stumbling in early December, California carbon allowance prices at the secondary market ramped higher during the week ended Dec. 16 due to increased trading activity.

The December 2019 vintage 2019 California carbon allowance contract was seen in a bid-and-ask range of $17.40/tonne to $17.48/tonne, up 25 cents from Dec. 3 pricing. The December 2020 vintage 2020 California carbon allowance contract was marked in a bid-and-offer spread of $18.38/tonne to $18.42/tonne as of Dec. 16, rising 27 cents from prior assessments.

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Market sources attributed the rise in over-the-counter allowance prices to the fact that participants have started to roll positions from the vintage 2019 contract to future vintages before year's end.

The California Air Resources Board unveiled details Dec. 2 regarding 2020 greenhouse gas allowance auctions, highlighting an auction reserve price of $16.68/tonne to be used for the upcoming year by California.

The auction reserve price will increase from $15.62/tonne in 2019 since the state's cap-and-trade regulations 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 first compliance phase of the California cap-and-trade program, which went into effect Jan. 1, 2013, and ran through Dec. 31, 2014, included all major industrial sources, along with electric utilities. The second phase of the cap-and-trade program kicked off in January 2015, bringing in distributors of transportation fuels and natural gas under the caps and is set to end Dec. 31. The third compliance period runs from Jan. 1, 2018, through Dec. 31, 2020.

Under the Western Climate Initiative, 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.

The board also indicated that Quebec's annual reserve price will rise in 2020 to C$16.34/tonne, up from C$15.31/tonne in 2019.

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