To quickly access the page content, please click on the links below. 

• News Update
• Summary of the First WCA Auction - Feb. 28th, 2023
• WCA Schedule
• Offsets Update
• Washington Carbon Allowances (WCA)
• Market Update
• Figure 1. WCA Prices (December 2023 Contract - Dec. 2022 to Present)

News Update  

• Washington state considers linkage between WCA and CCA markets. Washington state is currently considering linking its new carbon allowance market with the WCI market and is seeking public input on the proposal, but officials have said that they do not expect the process to be completed until 2025 or later. Linking the two markets would require an environmental justice assessment, and criteria that would ensure the linkage would reduce the cost of compliance for covered entities but not impeded the ability of the state to reach its GHG emission goals. If Washington decides to pursue the linkage, California and Quebec would have to undergo their own decision-making process.

• Washington legislators advance carbon offsets bill for project developments. A committee of Washington state House of Representatives advanced legislation that would enable the state Department of Natural Resources to develop "ecosystem service projects” on the 6 million acres of lands and waters it manages. Potential projects could include forest conservation and reforestation, and blue carbon ecosystem preservation.

• Washington state requests federal court to dismiss GHG market lawsuit.  Invenergy, a Chicago-based power plant owner, is accusing Washington state of discriminating against out-of-state companies. Invenergy, who operates the only natural gas-powered generator in the state not owned by a Washington-based company, alleges that the WCA program’s allocation of no-cost allowances to in-state power generators violates the US Constitution's commerce clause. Washington state officials have asked a federal court to dismiss the lawsuit, citing that they are not in violation of the equal protection and commerce clauses of the US constitution as Invenergy has failed to show that the state’s method for allocating allowances to utilities favors in-state economic interests.

• Washington Carbon Allowances to begin trading on Intercontinental Exchange. ICE has announced March 27^th, 2023 as the go live date for trades with three WCA futures contracts available for trading. The exchange will list V23 and V24 WCA contracts as well as a current auction clearing price (ACP) contract.

First WCA Auction – February 28^th, 2023

OVERVIEW:

Washington's Department of Ecology (DEP) released the results from Washington's first Cap-and-invest auction on March 7th:

• The settlement price for the current auction was $48.50 MtCO2 at a 2.67 bid-to-cover ratio.
• The 2.67 bid to cover ratio meant roughly 16.5 million allowances were bid on and funded.
• This auction recorded 56 qualified bidders, of which AEGIS identified 32 with compliance in program.   
• Financial participation stood at 24 entities

KEY STATS:

* 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:

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:   

** 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 an 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 February 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 Schedule

• Q1 Auction Results – March 7^th, 2023
• Q1 Auction Financial Settlement – March 15^th, 2023
• Q1 Auction Transfer of Allowances into CITSS Accounts – March 28^th, 2023

• Q2 Auction – May 31^st, 2023
• Q2 Auction Results – June 7^th, 2023
• Q2 Auction Financial Settlement – June 14^th, 2023

Offset Update

• The Department of Ecology has yet to officially announce any approved offsets but we will track them here moving forward.
• There are offsets in WCI-CITSS system that have been approved by California that likely will be available to comply with the Washington program.

Washington Carbon Allowances (WCA)

• Allowance pricing as of March 8^th, 2023: $51.00 – Vintage 2023, Mar 2023 Delivery 
• Allowance pricing as of March 8^th, 2023: $53.00 – Vintage 2023, Dec 2023 Delivery
• The average daily price in Feb 2023: $43.05 – Vintage 2023

Market Update

• Market is strong bid currently after the strong auction results of $48.50 and 56 qualified bidders.

• ACPR level is $51.90, but only triggers if auction clears above that, so possible over-the-counter transactions exceed that, but the 18.6 million in ACPR should keep prices near that level or below around Q2 ‘23 and Q3 ‘23 auctions.

• Given the significant supply cuts of 7% per year and limited supply of allowances currently allocated, trading volume may remain light until more allocations and allowances are distributed to CITSS accounts.

Figure 1. WCA Daily Transactions (December 2023 Contract - Dec. 2022 to Present)

WCA Pricing
2023 Average Daily Price:	$ 42.96
Average Monthly Price (Feb. 2023):	$ 42.25
2023 Highest Daily Price (Mar. 7th, 2023):	$ 50.00

Questions? Contact our team for more information: environmental@aegis-hedging.com

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