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Calif. carbon allowance prices breach $15.00/tonne

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Calif. carbon allowance prices breach $15.00/tonne

Secondary market prices for California carbon allowances continued to tumble during the week ended Aug. 9, slipping below the $15.00/tonne mark.

According to broker data as of Aug. 9, the August 2017 vintage 2017 California carbon allowance contract was marked in a bid-and-ask range of $14.75/tonne to $14.86/tonne, unwinding 30 cents from prior weekly assessments.

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As of Aug. 9, the benchmark December 2017 vintage 2017 California carbon allowance futures contract was quoted in a bid-and-offer spread of $14.85/tonne to $14.95/tonne, down 29 cents from the week before.

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Market sources have attributed the recent sell-off in the over-the-counter California carbon allowance market to a downside correction following a run higher in July that was sparked by the swift passage of legislation to extend the state's carbon cap-and-trade program through 2030.

Additionally, the downturn in carbon allowance values is also likely due, in part, to the upcoming quarterly auction to be held by the Western Climate Initiative.

"A new auction means new volume entering the market and is often used by traders to arbitrage the possible price difference between the primary and secondary market," according to an Aug. 8 report from ClearBlue Markets. "These traders would then sell before an auction in the secondary market and buy the volume back in the auction."

California and Quebec will hold their next joint greenhouse gas allowance auction Aug. 15. At the sale, the WCI will auction more than 63.8 million current vintage and more than 9.7 million advance vintage allowances.

In the last allowance sale held in mid-May, California and Quebec sold 100% of the more than 75.3 million current vintage allowances at US$13.80/tonne and more than 2.1 million of the more than 9.7 million 2020 carbon allowances at the market reserve price of US$13.57/tonne.

"After this correction in prices, we, however, still believe that the upside is currently limited as the oversupply (mainly due to the 143 million auction unsold all allowances) will need to be absorbed before we see prices rise above the floor. If as we expect, the August California/Quebec auction clears above the floor, this would mean that the November auction will see an extra 16 million allowances auctioned (based on the regulation treatment of unsold allowances)," ClearBlue Markets said.

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.