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Over-the-counter Calif. carbon allowances hold firm

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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


Over-the-counter Calif. carbon allowances hold firm

Secondarymarket prices for California carbon allowances were flat to start May in thewake of recent softness that saw values probe record lows. As of May 2, thespot California carbon allowance contract was pegged in a wider bid-and-offerrange of $12.50/tonne to $12.60/tonne but largely unchanged on the week.

TheMay 2016 vintage 2016 California carbon allowance futures contract was assessedin a bid-and-ask spread of $12.45/tonne to $12.60/tonne as of May 2. Thebenchmark December 2016 vintage 2016 California carbon futures contract wasseen in a bid-and-offer range of $12.55/tonne to $12.70/tonne again as of May 2.

Californiacarbon allowance prices at the over-the-counter market slumped to record lowsin recent weeks following the release, at the end of February, of the WesternClimate Initiative's February auction results.In the WCI's Feb. 17 sale, about 95% of the more than 71.5 million currentvintage allowances cleared at $12.73/tonne. Also, almost 9.4 million, or 93%,of the more than 10.0 million vintage 2019 allowances on offer were purchasedat $12.73/tonne.

Comprisedof California and Quebec, the WCI will hold their next joint May 18, putting more than 67.6million current vintage carbon allowances and more than 10.0 million vintage2019 allowances up for sale.

OnApril 28, the California Air Resources Board held a public workshop to discussa potential carbon cap-and-trade market linkage with Ontario. In February,officials in Ontario proposed legislation that would introduce a cap-and-tradesystem in the province in 2017. The province said it plans to reduce greenhousegas pollution to 15% below 1990 levels by 2020 and to 37% below 1990 levels by2030.

Alinkage with the Western Climate Initiative is expected in 2018, with Ontarioto first conduct its own carbon allowance auctions in 2017.

Also,during the April 28 workshop,CARB staff discussed the possibility of including a new offset protocol:international, sector-based offset credits issued by subnational programs toreduce emissions from tropical deforestation and forest degradation. Theprogram would provide California companies the opportunity to use carbonoffsets from protecting tropical forests for no more than 4% of a company'scompliance obligation under the cap-and-trade program.

Underthe California cap-and-trade system, up to 8% of an entity's emissions can becovered using offset credits from certified projects certified by the CARB.Initially during the early years of the California cap-and-trade program, fouroffset project types were approved by the CARB: forestry, urban forestry, dairydigesters and destruction of ozone-depleting substances. The board laterapproved coal mine methane capture and rice cultivation practices.

Market prices and included industrydata are current as of the time of publication and are subject to change. Formore detailed market data, including powerand naturalgas index prices, as well as forwardsand futures,visit our Commodities Pages.