California & Quebec Carbon Cap and Trade Report - February 2023

To quickly access the page content, please click on the links below. 

• News Update
• Offsets Update
• Offsets Pricing
• ARB Schedule
• California Carbon Allowances (CCA)
• Market Update 
• Figure 1. Open Interest on the Intercontinental Exchanges (ICE) - Vintages 2017-2023
• Figure 2. CCA Daily Transactions (Spot Contract - January 2020 to Present)

News Update  

• Gasoline Sales in California Continue to be down Year over Year. The October 2022 gasoline consumption was down 2.4% compared to October 2021.  Average retail gasoline prices in October hit $5.90/gallon in October 2022.  October 2022 sales were down 12% compared to October 2019.  Lower gasoline sales by fuel suppliers lead to lower carbon emissions in the cap and trade program.
  
  
• California lawmakers revive GHG reporting bill. Democrats in the legislature yesterday reintroduced a bill that would require companies doing business in California that generate more than $1bn/yr in revenue to publicly report their annual scope 1, 2 and 3 GHG emissions.
  
  
• California GHG market advisers back program updates. California Independent Emissions Market Advisory Committee’s (IEMAC) final report pushed for CARB and the legislature to limit allowance trading from facilities near minority or low-income populations that experience disproportionate exposure to air pollution and called for them to evaluate offset projects based on actual results and adjust allowance supply accordingly. IEMAC also continued to push for CARB to address what it considers to be an oversupply of allowances in the carbon market. The agency in 2024 should implement reforms that raise the price floor, reduce the issuance of new allowances and add an emissions containment reserve. The emissions containment reserve, used by Washington's new cap-and-trade program and the Regional Greenhouse Gas Initiative, would remove allowances from future auctions if the price drops below a certain level.
  
  
• California lawmakers and policymakers urged to provide greater certainty on authority to implement carbon program post 2030. Both the California Legislative Analyst’s Office and IEMAC should take steps to clarity the future of the program post 2030.  They state this limits further investments long term in climate friendly investments since not clear future of program.
  
  
• Research finds California’s carbon market lowered air pollution disparities in study sample. California’s WCI-linked cap-and-trade program reduced air pollution disparities between disadvantaged and other communities in a recent study covering 5% of the state’s reported emissions, potentially allaying concerns that market-based program present an equity-efficiency trade off, according to the findings of a new study.
  
  
• California governor names new air board members. Governor Gavin Newsom yesterday named: Riverside County supervisor Manuel Perez (D), Sacramento vice mayor Eric Guerra (D); University of California, Berkeley, Professor Susan Shaheen; and former state Assembly member Bill Quirk (D) to CARB.

Offsets Update

• ARB has issued an overall 503,182 carbon offsets in January 2023 
• 294,604 issued on January 10th   
• 208,578 issued on January 24th   
• 289,956 of the CCOs issued are listed as DEBs 
• 245 mln offsets have been issued since inception by ARB and Quebec
• 1.3 mln Quebec offsets have been issued in total; 7100 credits issued in January 2023

California:

Quebec:

Offsets Pricing

Offset Pricing as of February 16^th, 2023:

• California Carbon Offset (CCO3) - (3 years of Buyer Liability) $18.15 
• Golden California Carbon Offset (CCOs) – Spot Delivery $18.80 
• California Carbon Offset (CCO3 - DEB) - (3 years of Buyer Liability) $23.75
• Golden California Carbon Offset (CCOs- DEB) – Spot Delivery $24.40

ARB Schedule

• 2/15/2023 February 2023 Joint Auction
• 2/23/2023 Auction results posted
• 5/17/2023 May 2023 Joint Auction
• 8/16/2023 August 2023 Joint Auction

California Carbon Allowances (CCA)         

• Allowance pricing as of Feb 16^th, 2023: $28.02 – Vintage 2023, Feb 2023 Delivery   
• The average daily price in Jan 2023: $28.30 – Vintage 2023

Market Update

• The average daily price in January 2023 was $28.30 which was a 1.11% increase compared to the average price of $27.99 in December 2022.
  
  
• The market is awaiting the results of the February 15^th auction with results released February 23^rd. The market is expecting it to clear higher than the previous two auctions at $26.80 (November ’22) and $27.00 (August ’22).  The last two auctions saw a drop from previous auction settle.
  
  
• Krane Shares Carbon ETFs (both ETFs) dropped to 13.9 million shares on February 15^th from 14.3 million shares on January 12th, 2023 which was a 2.8% decrease.  Furthermore, we are now 4.6 million or 24.8% off the all-time high of 18.5 million California allowances in February 2022.
  
  
• The market is expected to recover in prices in 2023 as Gov Newsom and others continue to pressure ARB to make additional cuts to environmental programs to reach ambitious targets on GHG emissions for the state.  While the all-time high $35.20 in November 2021 may take some time to reach, seeing pricing back over $30.00 in 2023 is expected by many.  

Figure 1. Open Interest on the Intercontinental Exchanges (ICE) - Vintages 2017-2023

Figure 2. CCA Daily Transactions (Spot Contract - January 2022 to Present)

Questions? Contact our team for more information: environmental@aegis-hedging.com

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