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News Update
- CARB to offer 64.3 M total allowances in November auction. California Air Resources Board (CARB) will offer 64.3 M allowances in the upcoming joint auction dated for November 15th, 2023. The current auction will offer 56.7 M allowances and the advance auction will offer 7.6 M allowances. The reserves prices for both auctions remain at $22.21 for calendar year 2023. The results from the auction will be released on November 22nd, 2023, just one week after the auction.
- CARB announces joint workshop for November over potential amendments. California and Quebec jurisdictions will hold a joint workshop on November 16th, 2023, just one day after the joint auction, to examine potential future carbon allowance costs and toughening cap-and-trade program targets for each jurisdiction. The workshop will feature presentations from two modeling teams from each program mapping out allowance prices under multiple emissions budget scenarios of 48% or 55% reductions in greenhouse gas (GHG) emissions by 2030 or maintaining the current 40% reduction from 1990 levels for the linked market. Meeting the proposed targets could result in the removal of 115 M to 390 M allowances cumulatively from the 2025-2030 distributions if the proposed amendments are finalized to take effect by fall of 2024. Traders noted the presentation materials will be posted just 30 minutes after the bidding window closes for the November auction.
- Quebec overshoots GHG cap for 5th consecutive year. Quebec has set a reduction target of 37.5% from 1990 levels by 2030, attempting carbon neutrality by 2050 but has now exceeded its GHG cap for the fifth year in a row. Emissions from sources under the province’s cap-and-trade program totaled nearly 59.6 M tons, 5.5 M over the 54.1 M cap for 2022.
- Quebec to narrow carbon offset usage, require DEBS. In a meeting held on October 25th, 2023, the Quebec environment ministry held a meeting to discuss the role of offsets for compliance obligations amongst other potential changes to meet the province’s goal of carbon neutrality by 2050. The current regulation allows covered entities to meet 8% per year of their compliance obligations using carbon offsets and province regulators have discussed limiting this to 4%. Regulators were also discussing if offsets used towards compliance obligations should be required to come from projects that provide direct environmental benefits (DEBS) to either Quebec or California as part of the linked California-Quebec markets.
- Washington announces preliminary decision to pursue WCI linkage. ECY’s preliminary analysis determined that linkage with the California-Quebec market would meet most of the statutory criteria considered, including the implementation of more cost-effective means for covered entities to meet compliance obligations, reducing the stringency of the state’s program, and maintaining the state’s trajectory to achieve target emissions reduction limits. ECY further explained that linkage would benefit the state by creating a more stable market for entities to plan around and reducing allowance prices. Director Laura Watson expects a linked market to being in 2025 after rulemaking and a formal linkage agreement in 2024.
Offsets Update
- ARB has issued an overall 743,161 carbon offsets in October 2023.
- 568,582 issued on October 10th
- 174,579 issued on October 24th
- 258,868 of the CCOs issued are listed as DEBs
- 255 mln offsets have been issued since inception by ARB and Quebec.
- 1.5 mln Quebec offsets have been issued in total;
California:
Issuance |
ODS |
Livestock |
U.S. Forest |
Urban Forest |
MMC |
Rice Cultivation |
Total |
Sep. '23 |
25,738,646 |
9,121,140 |
205,668,981 |
- |
12,667,681 |
- |
252,196,448 |
Oct. '23 |
25,809,710 |
9,121,140 |
206,340,792 |
- |
12,667,681 |
- |
253,939,609 |
Delta |
71,350 |
- |
671,811 |
- |
- |
- |
743,161 |
Quebec:
Issuance
|
ODS
|
Landfills |
Covered Manure Storage
|
Active Coal Mines
|
Active Underground Coal Mines
|
Total
|
Sep. '23
|
691,705
|
789,976
|
- |
- |
- |
1,481,681
|
Oct. '23
|
691,705
|
789,976
|
- |
- |
- |
1,481,681
|
Delta
|
- |
- |
- |
- |
- |
- |
ARB Schedule
|
November 2023 Joint Auction #37
|
|
Joint Workshop (Potential Cap-and-Trade Amendments) |
|
November 2023 Joint Auction #37 Summary Results |
Offsets Pricing
Offsets Pricing as of November 3rd, 2023:
- California Carbon Offset (CCO3) - (3 years of Buyer Liability): $17.05
- California Carbon Offset (CCO3 - DEB) - (3 years of Buyer Liability): $28.90
- Golden California Carbon Offset (CCOs) – Spot Delivery: $17.50
- Golden California Carbon Offset (CCOs- DEB) – Spot Delivery: $28.45
California Carbon Allowances (CCA)
Offsets Pricing as of November 3rd, 2023:
- Vintage 2023 – Nov. 2023 Delivery: $38.44
- Vintage 2023 – Dec. 2023 Delivery: $38.62
- Vintage 2023 Average Daily Price (Oct. 2023): $36.51
Market Update
- The average daily price in October 2023 was $36.51, less than a 1% decrease compared to the average daily price of $36.69 in September 2023.
- Prompt pricing saw a modest decrease in the first week of October, opening at $36.42 before ticking down to $36.34 one week later and reaching the month-low of $35.78 on October 16th. Prices in the third week of the month returned to $36.42 before seeing an overnight jump to $37.00 on October 24th and setting a record by climbing to $37.85 over the final week of the month.
- The $0.58 spike on October 24th immediately followed California and Quebec regulators announcing a joint workshop scheduled for November 16th. Previous workshops discussed more stringent changes to the cap-and-trade program, mentioning a 48% reduction requirement by 2030 and modeling an alternative budget scenario of 55% as possibilities. The record-setting CCA price of $37.85 was seen one week later, just two days before Washington announced the decision to pursue linkage on November 2nd, with the current all-time high of $38.44 being set the following day.
- Krane Shares Carbon ETFs (both ETFs) held to 11.3 million shares on November 6th, 2023, compared to 11.5 million carbon allowances on October 9th, 2023, a slight decrease in the carbon futures holdings. Furthermore, we are still 7.2 million, or 38.9%, off the all-time high of 18.5 million California allowances seen in February 2022.
- Some market participants are expecting DEBs to be in a very tight supply for 2021-2023 compliance next year. Linkage with Washington would also have an effect, pulling many Washington offsets into the program in addition to some Washington projects that were already categorized as California DEBs.
Figure 1. CCA Daily Transactions (Spot Contract - Jan. 2023 to Present)
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|
2022 Average Daily Price: $28.93 per ton |
2023 Average Daily Price: $32.22 per ton |
2022 Highest Daily Price: $33.50 per ton (Jan. 1st, 2022) |
2023 Highest Daily Price: $38.44 per ton (Nov. 3rd, 2023) |
Questions? Contact our team for more information: environmental@aegis-hedging.com
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