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Auction Results: Ontario’s strong start bodes well for linkage in 2018

April 3, 2017 by Billy Hamshaw

(CaliforniaCarbon.info, Apr, 2017)

Summary: Ontario’s inaugural cap-and-trade auction held last month on March 22, 2017 got off to a strong start with a full subscription for the Current Auction of 2017 vintage allowances. A bid-to-cover ratio of 1.16 was observed, clearing all 25,296,367 allowances on offer. The auction cleared at CAD 18.08, CAD 0.01 above the Auction Reserve Price. The advanced auction witnessed a lower turn out of 26% as 812,000 of the 3,116,700 allowances for the 2020 future vintage were sold.

No. of Qualified bidders: 47
Revenue: CAD 472,031,155

 

Key Statistics

 

Secondary Market Impact

The results of the auction released by Ontario’s Ministry of the Environment and Climate Change (MOECC) are very much in line with market expectations. Based on CaliforniaCarbon.info’s analysis, Ontario’s stand alone market is expected to have an annual surplus of 1.2 million over the first year, triggering a cumulative shortage as early as 2018. As a result, participants were likely eager to buy allowances before supply is constricted.

The California and Quebec market is expected to have a cumulative surplus of 51 million by the end of 2017 assuming the remaining quarterly auctions of 2017 to be fully subscribed. With an anticipated linkage to this market in 2018, Ontario is expected to be a net buyer, aligning the state’s stand alone market with the WCI price floor. As a result, the Current Auction cleared at CAD 18.08, a cent up from the floor price based on March 22 exchange rate.

In similar fashion to California and Quebec’s joint auctions, relatively less volume was cleared on the Advanced Auction that saw a bid-to-cover ratio of 0.26 for V2020 allowances. Participants have shown a tendency to delay purchasing allowances further down the forward curve and instead wait for subsequent auctions to observe the true demand and market dynamics.

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