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Market stabilizes after period of volatility

July 31, 2017 by Ronjoy Bezbarua

AB 398 was written firmly into the Californian law books as Gov Brown put pen to paper last week to extend the program through to 2030. Addressing local pollutant concerns, SB 617 was passed alongside the extension bill. The bill will require local air quality management districts to monitor and report air quality data around the dirtiest sources of pollution as well as requiring some polluters to upgrade equipment to newer and cleaner technology. With much work ahead in fleshing out some of the detail curtailed within AB398, ARB held their monthly board meeting last week. Amendments such as the linkages with Ontario and provisions to address economic and emissions leakages were approved within the meeting. More pressing questions such as how ARB will address the overall cap beyond 2020 as well as further clarity over the use of offsets will be heard in forthcoming workshops and board meetings.

Trading activity was relatively slow the past week. A modest 2,872,000 tons cleared the exchange with the majority of activity focusing on Wednesday prior to Aug 17 transitioning to the new front contract. The contract remained unchanged from the previous week’s close of USD 15.15. The spread between the current front contract and Dec 17 benchmark was reduced slightly to USD 0.11 with the forward contract devaluing marginally by USD 0.01.

Traded volume was concentrated on the 2017 and 2018 vintages with a contribution of 76.32% and 23.68% respectively. In terms of contracts, volumes were spread across the previous front (Jul 17), current Dec 17 front and the Dec 18 contract, each having a contribution of 40.04%, 33.67% and 17.41%.

Open interest creation was relatively low, but yet saw a net positive change of 122,000  contracts. This, however, can be attributed to the current Dec 17 benchmark which saw a dilution of 443,000 contracts. The future benchmark, Dec 18, saw the highest gains with a positive net change of 410,000 contracts. The current front also saw a positive net change with a 130,000 contracts while Sep 17 saw 25,000.

Ontario’s carbon market witnessed another week without trade. With little price discovery the OCA closed the week at CAD 19.18. Traders in California will be gearing up for the next Joint Auction which will take place on August 15. Ontario will hold its third auction on Sept 6.

Billy Hamshaw (billy@californiacarbon.info)

Ronjoy Bezbarua (ronjoy.bezbarua@californiacarbon.info)

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