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News Update
- WCI Q3 auction sets the highest settlement price to date. August’s joint allowance auction settled at $35.20, $4.87 higher than the previous settlement price seen in the May auction, and $4.35 above the previous highest clearing price of $30.85 seen in the program during Q2 of 2022. The August auction settled $12.99 above the reserve price of $22.21, and nearly matches secondary market prices according to the data released by California Air Resources Board (CARB).
- California continues Washington evaluation for linkage. At the Argus summit held on September 11th, Deputy Executive Officer Rajinder Sahota maintained CARB’s stance of waiting one year before deciding on linkage with the Washington market. Sahota also stated stability in terms of policy and market behavior, matching offset criteria, and the potential impact on the California and Quebec markets as a result of incorporating another jurisdiction as key factors in the agency’s analysis leading up to the decision. Washington Department of Ecology (ECY) Director Laura Watson added ECY’s current focus is on building a “steady, predictable program for a year, and the time beyond that”, and “would love to be a boring market for entities to participate in”. ECY is set to make a preliminary decision to pursue linkage in October 2023, and both California and Quebec would each need to go through their own respective processes in 2024 before coming to an agreement to move forward. ECY has slated 2025 or 2026 as the earliest targets for linkage to occur.
- CARB announces timeline for SB-905 framework development. In a workshop hosted on August 15th, CARB guided stakeholders through the agency’s next steps as they establish protocols to support carbon dioxide removal (CDR) and carbon capture utilization and storage (CCUS) systems to meet the state's 2045 carbon neutrality target. Per SB-905, CARB is required to publish a state-wide framework for the permitting process regarding building and operating CDR and CCUS systems. By the same bill, CARB is also tasked with creating a centralized public database to track the deployment of CCUS and CDR technologies and the development of carbon dioxide capture, removal, and sequestration projects throughout the state. CARB has stated its intent to adopt regulations to achieve both measures by January 1, 2025.
- California assembly advances GHG disclosure bill to final stage. A California assembly voted 11-4 to approve SB-253 which will require corporations doing business in California with over $1 billion in annual gross revenue to disclose their full Scope 1-3 emissions. CARB is now required to develop and implement rules reflecting this decision into the program by January 1, 2025.
Auction Update - August 2023 (Auction #36)
The California Air Resources Board (CARB) released the results from the latest joint Cap-and-invest auction:
- The settlement price for the current auction was $35.20 per MT CO2e at a 1.59 bid-to-cover ratio.
- This auction reported 93 qualified bidders.
KEY STATS:
Auction #36 – Key Statistics
|
|
Current Auction (V23)
|
Advance Auction (V26)
|
Clearing Price
|
$ 35.20
|
$ 34.16
|
Floor Price
|
$ 22.21
|
$ 22.21
|
Bid Ratio
|
1.59
|
2.02
|
Allowances Offered
|
55,760,384
|
7,577,000
|
Allowances Sold
|
55,760,384
|
7,577,000
|
HHI*
|
483
|
1,071
|
Qualified Auction Bidders
|
93
|
93
|
* Herfindahl-Hirschman Index (HHI) ranges from 0 to 10,000. A lower number indicates a higher level of competition, a higher number indicates greater market concentration among fewer entities.
|
AUCTION COMPARISON (CURRENT):
|
Auction #35
|
Auction #36
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Auction Clearing Price
|
$ 30.33
|
$ 35.20
|
Floor Price
|
$ 22.21
|
$ 22.21
|
Qualified Bids
|
98,147,415
|
88,659,011
|
Allowances Offered
|
56,084,237
|
55,760,384
|
Allowances purchased by Compliance Entities
|
48,434,347 (86.36%)
|
46,532,040 (83.45%)
|
AUCTION COMPARISON (ADVANCE):
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Auction #35
|
Auction #36
|
Auction Clearing Price
|
$ 30.05
|
$ 34.16
|
Floor Price
|
$ 22.21
|
$ 22.21
|
Qualified Bids
|
19,927,510
|
15,305,540
|
Allowances Offered
|
7,577,000
|
7,577,000
|
Allowances purchased by Compliance Entities
|
5,844,140 (77.13%)
|
6,075,239 (80.18%)
|
Offsets Update
- ARB has issued an overall 2,816,371 carbon offsets in August 2023.
- 2,419,712 issued on August 8th
- 369,659 issued on August 22nd
- 71,112 of the CCOs issued are listed as DEBs
- 254 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 |
July '23 |
25,696,282 |
9,024,650 |
202,950,850 |
- |
11,926,103 |
- |
250,420,494 |
Aug. '23 |
25,696,282 |
9,080,621 |
205,147,907 |
- |
12,489,446 |
- |
252,414,256 |
Delta |
0 |
55,971 |
2,197,057 |
0 |
563,343 |
0 |
2,816,371 |
Quebec:
Issuance
|
ODS
|
Landfills |
Covered Manure Storage
|
Active Coal Mines
|
Active Underground Coal Mines
|
Total
|
July '23
|
691,705
|
789,976
|
- |
- |
- |
1,481,681
|
Aug. '23
|
691,705
|
789,976
|
- |
- |
- |
1,481,681
|
Delta
|
0
|
144,018 |
0 |
0 |
0 |
26,629
|
Offsets Pricing
Offsets Pricing as of September 14th, 2023:
- California Carbon Offset (CCO3) - (3 years of Buyer Liability): $17.90
- California Carbon Offset (CCO3 - DEB) - (3 years of Buyer Liability): $27.90
- Golden California Carbon Offset (CCOs) – Spot Delivery: $18.40
- Golden California Carbon Offset (CCOs- DEB) – Spot Delivery: $28.40
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 |
California Carbon Allowances (CCA)
- Allowance pricing as of Sept. 14th, 2023: $37.03 – Vintage 2023, Sept. 2023 Delivery
- Allowance pricing as of Sept. 14th, 2023: $37.63 - Vintage 2023, December 2023 Delivery
- The average daily price in August 2023: $35.66 – Vintage 2023
Market Update
- The average daily price in August 2023 was $35.66, which is a 7.05% increase compared to the average daily price of $33.31 in July 2023.
- Prices saw a small dip in early August, opening at $36.12 before dipping down to $35.06 two days later before returning to $36.23 the following week. Prices through the second week steadily trended downward to $35.20, coinciding with the clearing price seen in the August 16th quarterly auction. Following the auction, prices remained steady through the third week before climbing back up to $36.12 and experiencing a brief dip to $35.53 before closing out the month at $36.31.
- 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 11.7 million shares on September 11th, 2023, compared to 11.8 million carbon allowances on August 1st, 2023, a slight decrease in the carbon futures holdings. Furthermore, we are still 6.8 million or 36.8% 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. But 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: $31.27 per ton |
2022 Highest Daily Price: $33.50 per ton (Jan. 1st, 2022) |
2023 Highest Daily Price: $37.03 per ton (Sept. 13th, 2023) |
Questions? Contact our team for more information: environmental@aegis-hedging.com
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