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CCA prices leap to regain lost trajectory as auction threat is nullified

April 10, 2017 by Rahul Rana

CaliforniaCarbon.info, April 10, 2017: The influence that the California Chamber of Commerce vs ARB case previously had on the sentiments within the California carbon market was never more evident as it was last week after the appellate court decided in favor of ARB and CCA prices on ICE jumped by USD0.53 across the board in a single day of trading. To put this price spike in context, the historic average daily price change for the V17 Dec 17 is USD0.019, and the last time (and the only other) time that the market moved by such a margin was on 23 February, 2016 after the result of the first ever undersubscribed current auction was announced. In this regard, it seems fitting that the market came full circle and moved up by a similar amount once the most prominent threat to the program was swatted down.

More significantly, this is also the first time since 2015 that the current vintage front (now V17 Apr17) has stood a full USD0.56 off the auction floor. Given that the previous undersubscribed auction has left the market short of allowances for the moment, and that the secondary market is no longer the cheaper option to purchase allowances, it is likely that the subsequent auctions for the 2017 vintage will see healthier bid ratios and in high probability start clearing house again. For an in-depth analysis on how the auctions could play out under various scenarios considering the provisions for the unsold allowances to re-enter the primary market, please join our webinar on 12 April, 11AM PT (email us here to reserve seats).

A total of 4,891,000 tons were traded over the week with 56% of the total falling on the V17 Dec17 contract, and the V18 accounting for 21.98% of the total volume traded. Interestingly, the V17 May17 and the V17 Sep17 both registered on the books for the first time with 45,000 tons and 25,000 tons contracted on them last week. Both contracts have an added significance as they are ‘post-auction’ delivery contracts, i.e. the first futures contract through which allowances bought in the May or August auction can be traded. Open interest coming early on these contracts can signify positive positioning on the preceding auctions.

Carbon prices across the border in Ontario also reflected the price hike with 30,000 tons contracted on the Dec 17 delivery on Wednesday. OCAs closed the week at CAD19.10, or USD14.26; lower by USD0.04 when compared to the CCA counterpart (exchange rates provided by the Royal Bank of Canada on the day).

With the main threat to the program out of the way for now, eyes will shift to two central regulatory items of consequence to the program’s future – the Cap and Trade amendments via the Scoping Plan and Assembly Bill (AB) 151. The scoping plan will provide clarity on the post-2020 future of the cap and trade, including the role of the offsets program which is being contested against by the Environmental Justice Advisory Committee. The finalization of the Scoping Plan has been delayed as ARB extended the deadline to gather comments on the draft proposal (deadline for submitting comments is today, April 10, 2017). AB 151 aims to secure the current market based system. If passed with a two-thirds vote, the bill would protect the auctions integral to the market from the charge of being an unlawful tax. Read our Regulatory Round-ups to keep up to date on the cap-and-trade policy front.

Rahul Rana – rahul@californiacarbon.info

 

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