July 11, 2014 by CaliforniaCarbon.info
CaliforniaCarbon.info, July 11, 2014: This week, the California Air Resources Board (ARB), regulators of the California cap-and-trade program, published and then revised an up-to-date inventory of all compliance instruments that have been released or are scheduled to be released into the linked program with Quebec. California and Quebec officially linked their emissions trading schemes at the beginning of this year.
The document reveals that 83.7 million V2013 California carbon allowances (CCAs) and Quebec emissions allowances have been moved by participants into their compliance accounts, from which they may not be returned by the entities into the holding accounts or transferred to another participant. 83.7 million is well in excess of the annual surrender requirement (30% of the previous year’s emissions) in California, which would be no higher than 48.8 million assuming emissions are below the level of the cap. Quebec does not have annual surrender requirements.
Similarly, 43.5 million V2014 CCAs have already been moved into the compliance account, even though they will not be required until the triennial surrender date next November. Firms may have decided to transfer their allowances in order to make use of the limited exemption from holding limits. Under the regulation, the sum of V2013 and V2014 (and vintage-free, not relevant yet) CCAs in a firm’s holding and compliance accounts cannot exceed 6.4 million (see section 95920 for holding limits) based on the 2014 combined allowance budget. However, as of July 2014 a volume of allowances, up to the sum of the emissions specified in the 2012 and 2013 annual emissions data reports (with positive or qualified positive verification) and which is held in the compliance account, ceases to count against the holding limit. In this way, transferring instruments may help free up space for an entity to participate in future current vintage auctions or secondary market procurement of V2013/14 instruments.
In many cases, the allowances transferred to the compliance account could be allowances received through the industrial assistance provision. In the first compliance period, allowances are given out for free for roughly half of covered emissions, but these allowances may only be transferred from the holding account to the compliance account. In other words, they may not be transferred to other market or speculative participants. Thus, their movement into the compliance account reflects more narrowly the retirement strategy (since compliance account instruments are retired by a regulation-defined order rather than one specified by the entity); once a firm is sure which instruments are intended for retirement at which subsequent surrender date, there is no option value to keeping them in the holding account since transaction is not permitted.
The second half of the document shows that no offset credits are presently held in compliance accounts. It is unclear if this reflects no ARBOCs have been moved into compliance accounts, or that any ARBOCs which may have been in compliance accounts were removed as a result of the Clean Harbors review. Assuming again that capped emissions do not exceed 162.8 million, no more than 13 million ARBOCs may be retired this November. It is believed that the real number will be significantly lower, since many entities with smaller obligations are not likely to maximise their usage of offsets, and any unused portion of the budget can be made up at the triennial surrender in 2015.
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