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OVERVIEW:
Washington's Department of Ecology (DEP) released the results from Washington's first Cap-and-invest auction on March 7th:
KEY STATS:
Auction #1 – Key Statistics |
|
Clearing Price |
$ 48.50 |
Floor Price |
$ 22.22 |
Bid Ratio |
2.67 |
Allowances Offered |
6,185,222 |
Allowances Sold |
6,185,222 |
HHI* |
669 |
Qualified Auction Bidders |
56 |
Financial Participant Bidders |
24 |
* 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.
PRICE STATS:
Auction #1 – Price Statistics |
|
Auction Clearing Price |
$ 48.50 |
Floor Price |
$ 22.22 |
Tier 1 Trigger Price |
$ 51.90 |
Tier 2 Trigger Price |
$ 66.68 |
Price leading into auction (OTC and Nodal) |
$ 40.00 – $ 43.00 |
Allowance Price Containment Reserve (ACPR):
ACPR forecasted to sit at roughly 18.6 million as it is calculated 5% per year of the Total Covered CO2 Emissions for Phase I and II. The ACPR is triggered in 2023 if an auction clears above $51.90. Here is breakdown calculation for APCR for Phase I Total Covered CO2 Emissions:
Emissions Year |
Total Covered CO2e Emissions (Metric Tons) |
ACPR** |
2023 |
63,288,565 |
3,164,428 |
2024 |
58,524,909 |
2,926,245 |
2025 |
53,761,254 |
2,688,063 |
2026 |
48,997,598 |
2,449,880 |
** ACPR supply is calculated by multiplying a given compliance year’s respective Total Covered CO2e Emissions by 5%
SUMMARY:
56 qualified bidders in first auction exceeded expectations and the 24 financial participants was larger than market expected. There were 6.185 million bids at $48.50 and higher. There were another 10.3 million bids between $22.20 and $48.49 that did not clear. Likely we saw some speculators register and put in lower bids with hopes of auction settle at or near floor price given the first auction. Obviously, that did not occur. The qualified bid to Total Allowances ratio was 2.67 as discussed above compared to California Feb 2023 auction which saw 1.84 ratio for current vintage. The bid ratio for the first California auction in November 2012 was 1.06. Many financial firms appeared to bid just in case there was a repeat. But the significant cuts in the Washington program vs California and the started expected supply and demand, caused there to be overwhelming bid support in this first program.
Market immediately saw OTC bids of $48 and $48.50 in market and NODAL after the auction results were released. NODAL traded 335,000 allowances on March 7th. OTC trades not reported all the time, but likely saw at least 200,000 tons on March 7th.
Day after auction, no trades have been reported yet. NODAL Dec ’23 is $50 @ 60. Spot delivery is $50@$52. Both compliance entities and financial players currently on the bid.
|
|
WCA Pricing |
|
2023 Average Daily Price: |
$ 42.96 |
Average Monthly Price (Feb. 2023): |
$ 42.25 |
2023 Highest Daily Price (Mar. 7th, 2023): |
$ 50.00 |
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