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Calif. carbon allowance prices trek higher after latest WCI auction

Secondary market prices for California carbon allowances ramped higher following the Western Climate Initiative's first quarterly allowance auction of the year.

According to broker data as of the week ended March 21, the March 2019 vintage 2019 carbon allowance contract was assessed in a bid-and-offer range of $16.00/tonne to $16.07/tonne, increasing 13 cents from the end of February.

The benchmark December 2019 vintage 2019 California carbon allowance contract was seen in a bid-and-ask spread of $16.66/tonne to $16.68/tonne, rising 17 cents from prior assessments at the end of February.

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In the Western Climate Initiative's first quarterly greenhouse gas allowance auction of the year, held Feb. 20, 100% of the more than 80.8 million current vintage allowances sold at $15.73/tonne, 11 cents above the new market reserve price. This was up 44 cents from the previous sale, when the price cleared at $15.31/tonne.

The results also showed that almost 6.0 million of the more than 9.0 million future vintage 2022 allowances were purchased at $15.62/tonne, the new floor price.

"These allowances are not available for use until 2022. This is the first auction since the floor price increased to $15.62, so businesses have three more auctions at this price floor to purchase allowances that cannot be used for three more years," Environmental Defense Fund senior analyst of climate policy Katelyn Roedner Sutter said Feb. 27.

"This will be the last auction that includes previously-unsold California allowances offered for sale, though a much smaller volume of previously-unsold allowances from Quebec could be available at the next auction. But either way, this means that allowance supply will somewhat contract after this auction, which could drive allowance prices higher. Companies could be planning ahead and purchasing allowances now when they are less expensive," the analyst added.

Demand was strong overall, despite uncertainty over PG&E Corp.'s position after the company and its utility subsidiary filed for Chapter 11 bankruptcy reorganization Jan. 29 due to billions of dollars in potential liabilities from recent California wildfires.

Under the California cap-and-trade system, utilities, including PG&E, receive allowances directly from the California Air Resources Board. The utilities then have to sell those allowances in the quarterly auctions.

"All California utilities have a legal obligation to serve their customers, which includes complying with regulations like participating in the cap-and-trade program," Roedner Sutter said. "Because of this requirement, PG&E could not sell off allowances early to raise funds to assist in the bankruptcy proceedings. Furthermore, should PG&E ultimately be restructured, the cap-and-trade compliance obligation would transfer to any successor entities, according to a rule adopted by CARB in May 2018."

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