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News Update
- CARB presents trimmed budget scenarios, 2045 30.3M budget target in latest workshop. In a workshop hosted on October 5th, CARB presented two options for each of the three post-2030 allowance budget scenarios, all leading towards a final budget of 30.3 million allowances in 2045 hinging on emissions reductions of 40%, 48%, and 55% by 2045. The first option features a linear decline starting from 2030 covered emissions targets of 149 MT (55%), 173 MT (48%), or 199 MT (40%), resulting in a cumulative allowance budget between 1,290 MT (55%), 1,450 MT (48%), and 1,635 MT (40%) for 2031 to 2045. The second option also features a linear decline, but starts from the 2030 potential allowance budgets of 110 MT (55%), 139 MT (48%), or 140 MT (40%), resulting in a cumulative allowance budgets of 1,015 MT (55%), 1,215 MT (48%), and 1,460 MT (40%) for 2031 to 2045 and achieves these cumulative allowance removals by adjusting the annual budgets for 2025 to 2030 and the number of allowances in price containment accounts.
- California offset issuances up 7.4% through Q3 23 vs. Q3 22. California has minted 10.1 million offsets through Q3 2023, nearly a 7.4% increase compared to the 9.4 million issued through Q3 2022. Despite exceeding the previous year’s quarterly issuance levels, September 2023 saw just under 782,000 allowances issued compared to the 2.1 million in September 2022. Potential changes to the program discussed by CARB and the evaluation of offset usage impacts pre- and post-2030 could be factors contributing to the differences in both current and future offset issuance levels.
- California dairy developing new methane protocol. Dairy Cares, a Sacramento-based nonprofit, is developing a protocol and calculator that could allow state regulators to recognize the emissions reductions related to digestive methane-reducing feed additives in addition to the methane emissions coming from manure already being measured. While California accounts for the methane emissions reduced from the manure side of the industry, digestive emissions are not factored into the state’s GHG inventory, leaving the potential for more reductions to be counted if the protocol and calculator is effective.
Workshop Update
Potential 2021-2030 Allowance Budget Scenarios
In the cap-and -trade workshop held on October 5th, 2023, CARB expanded on allowance budget scenarios presented in the previous workshop with emissions reduction targets of 40%, 48%, and 55% from 1990 levels by 2030. In the July workshop, CARB indicated that 115 M to 390 M allowances would need to be removed to meet the three 2030 emissions targets:
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- 40% by 2030: 199 MMTCO2e
- 48% by 2030: 173 MMTCO2e
- 55% by 2030: 149 MMTCO2e
CARB noted that each scenario would receive the same cumulative allowance removal as its corresponding hypothetical scenario with decline paths set at constant annual percent change from 2024 to 2030, achieved by adjusting the annual budgets for 2025 to 2030 while still maintaining the number of allowances in price containment accounts.
Hypothetical Inventory Adjustment Scenarios:
Potential Allowance Pools to Retire California Allowances
CARB also stated that the proposed allowance removals from the different available pools and their impacts on stringency will be evaluated alongside the impacts of potential offset usage post-2030 and potential designations of post-2030 allowances to price containment. Evaluations over allowance pricing will also take place for both California and Quebec jurisdictions independently to further assess the impact of the allowance removals at the individual and joint market levels.
Post-2030 Allowance Budget Scenarios
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All scenario options lead towards a final budget of 30.3 million allowances in 2045. |
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Option #1: Emissions Target Method
The emissions target method features a linear decline starting from 2030 covered emissions targets of 149 MT (55%), 173 MT (48%), or 199 MT (40%), resulting in a cumulative allowance budget between 1,290 MT (55%), 1,450 MT (48%), and 1,635 MT (40%) for 2031 to 2045. The cumulative 2031-2045 budget for this option depends on the adopted 2030 emissions reduction target.
Option #2: Allowance Budget Method
The allowance budget method also features a linear decline, but instead starts from the 2030 potential allowance budgets of 110 MT (55%), 139 MT (48%), or 140 MT (40%), resulting in cumulative allowance budgets of 1,015 MT (55%), 1,215 MT (48%), and 1,460 MT (40%) for 2031 to 2045. Option #2 achieves these cumulative allowance removals by adjusting the annual budgets for 2025 to 2030 and the number of allowances in price containment accounts. The cumulative 2031-2045 budget for this option depends on the adopted 2030 allowance budget.
Comparison of 2030 Starting Points |
Cumulative Budget for 2031-2045 |
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Offsets Update
- ARB has issued an overall 782,192 carbon offsets in September 2023.
- 598,147 issued on September 12th
- 184,045 issued on September 26th
- 426,032 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 |
Aug. '23 |
25,696,282 |
9,080,621 |
205,147,907 |
- |
12,489,446 |
- |
252,414,256 |
Sep. '23 |
25,738,646 |
9,121,140 |
205,668,981 |
- |
12,667,681 |
- |
252,196,448 |
Delta |
42,364 |
40,519 |
521,074 |
0 |
178,235 |
0 |
782,192 |
Quebec:
Issuance
|
ODS
|
Landfills |
Covered Manure Storage
|
Active Coal Mines
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Active Underground Coal Mines
|
Total
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Aug. '23
|
691,705
|
789,976
|
- |
- |
- |
1,481,681
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Sep. '23
|
691,705
|
789,976
|
- |
- |
- |
1,481,681
|
Delta
|
0
|
0 |
0 |
0 |
0 |
0
|
ARB Schedule
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California 2022 Compliance Deadline
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November 2023 Joint Auction #37
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November 2023 Joint Auction #37 Summary Results |
Offsets Pricing
Offsets Pricing as of October 9th, 2023:
- California Carbon Offset (CCO3) - (3 years of Buyer Liability): $17.75
- California Carbon Offset (CCO3 - DEB) - (3 years of Buyer Liability): $28.35
- Golden California Carbon Offset (CCOs) – Spot Delivery: $18.25
- Golden California Carbon Offset (CCOs- DEB) – Spot Delivery: $28.85
California Carbon Allowances (CCA)
Offsets Pricing as of October 9th, 2023:
- Vintage 2023 – Oct. 2023 Delivery: $36.41
- Vintage 2023 – Dec. 2023 Delivery: $36.78
- Vintage 2023 Average Daily Price (Sept. 2023): $36.69
Market Update
- The average daily price in September 2023 was $36.69, which is a 2.89% increase compared to the average daily price of $35.66 in August 2023.
- Prompt pricing saw a modest increase in the first week of September, opening at $36.30 before ticking up to $37.08 a week later and reaching the YTD-high of $37.12 on September 14th. Prices through the last two weeks of the month steadily returned downwards to $36.47 before seeing an overnight drop of 29¢ to $36.18 on September 27th and rebounding to $36.38 the next day to close out the month.
- The record high CCA price of $37.08 followed previous announcements by California and Quebec regulators in workshops discussing more stringent changes to the cap-and-trade program, mentioning the possibility of a 48% reduction requirement by 2030 and even modeling an alternative budget scenario of 55%.
- Krane Shares Carbon ETFs (both ETFs) held to 11.5 million shares on October 9th, 2023, compared to 11.7 million carbon allowances on September 11th, 2023, a slight decrease in the carbon futures holdings. Furthermore, we are still 7 million, or 37.8%, off the all-time high of 18.5 million California allowances seen in February 2022.
- Compliance for 30% of 2022 emissions are due November 1st, 2023, which likely will not be a major event in the market as most entities either have received a free allocation that more than covers 30% or have bought. Compliance in November 1st, 2024 when entities are required to cover 70% of 2021, 70% of 2022, and 100% of 2023 should see significant buying of allowances and offsets in the next 13 months which may cause prices to continue to increase.
- Some market participants are expecting DEBs to be in a very tight supply for 2021-2023 compliance next year. Also, Washington’s program which will pull many WA offsets into that program, will have an effect as well as some of the WA projects that were categorized as CA 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: $31.74 per ton |
2022 Highest Daily Price: $33.50 per ton (Jan. 1st, 2022) |
2023 Highest Daily Price: $37.12 per ton (Sept. 14th, 2023) |
Questions? Contact our team for more information: environmental@aegis-hedging.com
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