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News Update
- Washington to conduct emergency GHG allowance rulemaking. Regulators announced plans for an emergency rulemaking to adopt changes to clarify how many allowances from the Auction Price-Containment Reserve (APCR) an entity can hold in their compliance and holding accounts at one time. The Washington State Department of Ecology (ECY) requires allowances bought from an APCR auction to be deposited into a compliance account, which can only be used towards compliance obligations, rather than a holding account which allows trading on the secondary market. ECY has yet to release a date for the rulemaking.
- WCAs trade above reserve trigger prices. Washington allowances have traded above the first and second tier reserve prices of $51.90 and $66.68 in April, raising the potential for more allowances to be added to the market. The upcoming auction scheduled for May 31st could also very well clear above the first tier reserve price and trigger the release of the reserve allowances in an APCR auction scheduled for August 9th.
- Intercontinental Exchange retargets June 5 for WCA listings. After a month of postponing listings of WCA futures contracts that were previously announced to go live on March 27th, ICE has now confirmed June 5th, 2023 as the new listing date. The exchange still plans on listing V23 and V24 WCA futures contracts along with a current auction clearing price (ACP) contract. ICE informed AEGIS (but didn’t broadcast to market) 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.
- Washington doubles down on GHG suit dismissal. ECY is calling upon the US District Courts once again to dismiss the lawsuit against Invenergy, where Invenergy alleges that the state violated the US Constitution's commerce clause, citing discrimination through not receiving any free allowances from the WCA program’s allocation to in-state power generators. ECY argued that Invenergy, who operates the only natural gas-powered generator in the state not owned by a Washington-based company, should not receive free allowances under the cap-and-trade program due to being an electricity wholesaler rather than a public utility. Similar energy program lawsuits against states by power companies have been largely unsuccessful, and this suit could see the same fate in the hearings scheduled for January 2024 if not dismissed.
WCA Schedule
- Q2 Auction Bid Guarantees Due – May 19th, 2023
- Q2 Auction – May 31st, 2023
- Q2 Auction Results – June 7th, 2023
- Q2 Auction Financial Settlement – June 14th, 2023
- Q3 Auction Notice – June 30th, 2023
- APCR Auction – August 9th, 2023 (Tentative)
- Q3 Auction Bid Guarantees Due – August 18th, 2023
- Q3 Auction – August 30th, 2023
- Q3 Auction Results – September 6th, 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 May 10th, 2023: $61.00 – Vintage 2023, Apr 2023 Delivery
- Allowance pricing as of May 10th, 2023: $64.00 – Vintage 2023, Dec 2023 Delivery
- The average daily price in April 2023: $65.55 – Vintage 2023, Dec 2023 Delivery
Market Update
- Auction Notice #2 for the May 2023 auction was released on March 31st. The Current Auction will offer 8.59 million V23 allowances and the Advance Auction will offer 2.45 million V26 allowances. Both auctions have a floor price of $22.20, a T1 ACPR trigger of $51.90, and a T2 ACPR trigger of $66.68.
- The ACPR currently holds ~ 18.6 million allowances, but the ECY will not disclose how the reserve volume will be split between tiers until a reserve sale notice is released, which will likely coincide with the release of the emergency rulemaking.
- WCA prices for December 2023 delivery have climbed by 60% to $64.00 since the trading began in December 2022. Prices reached $71.00 on April 14th, marking a new all-time high for the program.
- Given the significant supply cuts of 7% per year and the limited supply of non-reserve allowances currently allocated, trading volume may remain light until more allocations and allowances are distributed to CITSS accounts or an APCR auction occurs.
- The addition of another 8.585 million V23 allowances and 2.45 million V26 which can be sued for 70% of 2023 emissions on compliance date of November 1st, 2027, plus an additional amount ~ 18.6 million if APCR triggered (9.3 million per 2023 Vintage and 2026 Vintage if 50%/50% split from Tier 1 and Tier 2) from ACPR if auction clears at $51.90 or above, this could bring some welcomed liquidity to market and potentially dampen prices for a period of time, which it already has seeing December of 2023 prices retrace to $64 after hitting high of $71.00.
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WCA Pricing (Vintage 2023)
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December 2023 Average Daily Price:
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$ 51.93
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December 2023 Average Monthly Price (Apr. 2023):
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$ 65.55
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December 2023 Highest Daily Price (Apr. 14th, 2023):
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$ 71.00
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Questions? Contact our team for more information: environmental@aegis-hedging.com
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