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Benchmark Calif. carbon allowance price tops $13.50/tonne

During the week ended Jan. 17, over-the-counter prices for California carbon allowances continued to shift higher, with the benchmark December 2017 vintage 2017 California carbon allowance futures contract topping $13.50/tonne. As of Jan. 17, the contract was eyed in a bid-and-offer range of $13.50/tonne to $13.61/tonne, gaining 7 cents from the week prior.

Broker data showed the spot California carbon allowance contract in a bid-and-offer range of $13.26/tonne to $13.30/tonne, up 10 cents on the week. The January 2017 vintage 2017 California carbon allowance contract was discussed in a bid-and-ask spread of $13.27/tonne to $13.31/tonne, also increasing 10 cents from the week prior.

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California carbon allowance prices at the secondary market have been advancing as trading has ramped up with buyers looking to book deals below the new auction reserve price floor of $13.57/tonne, which is up from $12.73/tonne in 2016. Under the California cap-and-trade regulation, the reserve 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 rate of inflation used to calculate the 2017 market floor price was 1.64%.

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Market sources also pointed to other recent price supportive news. California Gov. Jerry Brown has called upon the state legislature to pass legislation by a two-thirds vote to confirm the California Air Resources Board's authority to administer the state's greenhouse gas emissions cap-and-trade auction program beyond 2020.

Opponents of the cap-and-trade program argue that the program constitutes an illegal tax because it was never approved by a two-thirds vote. In November 2012, the California Chamber of Commerce filed a lawsuit to invalidate the cap-and-trade auctions on the basis that the auction process is an unconstitutional state tax because it was not enacted by two-thirds majorities in both chambers of the California Legislature and that A.B. 32 does not authorize the creation of such a process to sell emission allowances.

While the court upheld regulations adopted by CARB establishing the greenhouse gas auctions, the National Association of Manufacturers appealed the decision to the Court of Appeal of the California Third Appellate District. The California Court of Appeals in Sacramento will hear oral arguments Jan. 24.

Formally linked in 2014, the California and Quebec cap-and-trade systems cover emissions from utility and industrial facilities, which emit more than 25,000 tonnes of carbon each year. Those facilities must purchase either state carbon allowances or carbon offsets to account for their annual emissions under the annual emissions cap.

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.