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News Update
- WCA Q2 auction triggers APCR. Vintage 2023 Washington carbon allowances (WCA) settled above the $51.90 reserve price at $56.01 in the Q2 auction, triggering the allowance price containment reserve (APCR) in Q3. The reserve sale is scheduled for August 9th, 2023, will be the first of its kind as other longstanding cap-and-trade programs, such as California’s starting in 2013, have never had to access their reserve allowances. Covered entities and opt-in entities will be eligible to participate in the reserve auction, however general market participants will not.
- Washington sets reserve auction for August 9th. Washington will offer nearly 1.1 million out of the 18.6 million total reserve allowances in its first containment reserve auction on August 9th, 2023. The auction will offer 527,000 allowances at the Tier 1 price of $51.90, and 527,000 allowances at the Tier 2 price of $66.68.
- Washington adopts emergency limit rules for GHG allowance reserve. On June 8th, 2023, ECY adopted emergency rules clarifying the limits on allowances from the APCR. Allowances in the APCR do not have a vintage, and the existing rule concerning holding limits did not account for this. As a result of the emergency rule, allowances from the APCR now contribute to the total number of allowances an entity can hold in its compliance and holding accounts at one time. Any allowances procured in the reserve sale will be sent directly to compliance accounts and will be unable to be traded on the secondary market. The emergency rule is active until October 6th, 2023, and ECY has begun the rulemaking process to make the limits from the emergency rule permanent.
- WCA futures live on Intercontinental Exchange. After nearly two months of postponement, ICE has officially listed contracts for WCA futures, as of June 5th, 2023. The exchange lists V23 and V24 WCA futures contracts along with a current auction clearing price (ACP) contract. ICE informed AEGIS that the delay was associated with holding limit exemptions as ICE stands in between all buyers and sellers on the monthly delivery day and had yet to receive exemptions from Washington State Department of Ecology (ECY) to exceed holding limits.
Auction Results Summary
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2023 Vintage
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2026 Vintage
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Allowances Offered
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8,585,000
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2,450,000
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Allowances Sold
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8,585,000
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2,450,000
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Settlement Price
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$ 56.01
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$ 31.12
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Floor Price
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$ 22.20
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$ 22.20
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Total qualified bids divided by total allowances available for sale
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1.95
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1.44
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February Auction
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May Auction
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Compliance / Opt-in Entities
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29
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25
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General Market Participants
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27
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29
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Total Qualified Participants
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56
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54
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New Participants in May ‘23 auction vs Feb ‘23 auction
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-
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12
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Participants from Feb ‘23 who didn’t register for May ‘23
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-
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14
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APCR Update
As discussed above, Washington ECY shocked market participants by only releasing 1,054,000 allowances split equally between Tier 1 ($51.90) and Tier 2 ($66.68). The market reacted by trading up ~$9.00 on Friday, June 9th. Prices currently as of June 10th are $64.00 for Vintage 2023 for June delivery and $62.00 for Vintage 2026.
ECY finally disclosed the formula for APCR volume which can be changed for any future auctions. The formula can be found here, and is summarized below:
ECY determines a maximum and minimum volume for each APCR auction:
- Max: In 2023, they allocated up to 8 million allowances that could be sold. They take the number of potential APCR auctions left in the year: 3 (best on Q2 auction triggering and two more auctions. The maximum is determined by taking 8 million divided by 3 = 2,666,667.
- Min: 2023 regular allowance budget of 63,288,565 times 5% (per regulation) = 1,054,000 (rounded down to nearest thousand)
- The APCR auction supply is equal to the number of 2023 Vintage allowances purchased by investors (general accounts) as long as it’s within the minimum and maximum bounds
- For May ’23 Auction = 868,802 or 10.12% of 8,585,000 (purchased by investors)
- Since 868,802 falls below the calculated minimum of 1,054,000, the APCR volume minimum is 1,054,000, of which is 527,000 per tier.
APCR Allowances Made Available by Year (2023-2026): |
Year |
2023 |
2024 |
2025 |
2026 |
Allowances Available
|
8 million |
6 million |
3 million |
1.65 million |
(any unsold allowances roll over to the next year)
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WCA Schedule
APCR Auction #1 |
August 9th, 2023 |
APCR Auction #1 Results |
August 16th, 2023 |
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Q3 Auction Notice |
June 30th, 2023 |
Q3 Auction Notice |
August 30th, 2023 |
Q3 Auction Notice |
September 6th, 2023 |
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APCR Auction #2 Notice |
September 8th, 2023 (Tentative) |
APCR Auction #2 |
November 8th, 2023 (Tentative) |
APCR Auction #2 Results |
November 15th, 2023 (Tentative) |
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|
Q4 Auction Notice |
October 6th, 2023 |
Q4 Auction |
December 6th, 2023 |
Q4 Auction Results |
December 14th, 2023 |
Offsets Update
- The Department of Ecology has approved the American Carbon Registry (ACR) and Climate Action Reserve (CAR) to list offset projects for the state’s cap-and-invest program.
- There are also offsets in WCI-CITSS system that have been approved by California that will likely be available to comply with the Washington program.
WCA Pricing Update
- Allowance pricing as of June 9th, 2023: $64.00 – Vintage 2023, June 2023 Delivery
- Allowance pricing as of June 9th, 2023: $66.50 – Vintage 2023, Dec 2023 Delivery
- The average daily price in May 2023: $63.89 – Vintage 2023, Dec 2023 Delivery
Market Update
- Auction #2 was held on May 31st, 2023. All 8.585 million V23 allowances in the Current Auction and all 2.45 million V26 allowances in the Advance Auction were sold. Both auctions had a floor price of $22.20, with V23 allowances settling at $56.01 and V26 allowances at $31.12. Given the auction price settling above the Tier 1 ACPR trigger of $51.90, the program’s first APCR auction will take place on August 9th, 2023.
- The market for V23 traded down after the auction results to $54.00 and V26 traded as low as $47.00 on June 7th. After the APCR notice on June 9th, prices increased to $64.00 for V23 and $62.00 for V26. This provided a short-term buying opportunity.
- The APCR currently holds ~ 18.6 million allowances in total, and ECY will only offer 527,000 allowances at $51.90 and 527,000 allowances at $66.68 in the reserve sale on August 9th, 2023, per the notice released on June 9th, 2023, which did not have the same short term bearish as the market expected given the full 18.6 million will not release at once.
- The WCA market for Dec. ’23 delivery saw prices of $63.89 in May 2023, a 2.5% decrease from $65.55 in April. Overall, WCAs for Dec. ‘23 delivery have climbed by 52.5% since the trading began in December 2022.
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WCA Pricing (Vintage 2023)
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Prompt Delivery
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Dec. '23 Delivery
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December 2023 Average Daily Price:
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$ 59.26
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$ 53.02
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December 2023 Average Monthly Price (May 2023):
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$ 60.93
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$ 63.89
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December 2023 Highest Daily Price (Apr. 14th, 2023):
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$ 65.00
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$ 70.00
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Questions? Contact our team for more information: environmental@aegis-hedging.com
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