June 23, 2017 by Billy Hamshaw
(CaliforniaCarbon.info, June 23, 2017) California Carbon Allowance (CCA) prices have risen to new heights this week with noise of a new post-2020 extension bill circulating. Over the past few months, market sentiments have hung on the momentum behind a number of proposed bills to extend the state’s cap-and-trade program. Less abrasive in nature than previous bills put forward, this week’s latest extension talk has brought with it fresh optimism over the market’s outlook post-2020.
Based on CaliforniaCarbon.info sources, this article takes a look at some of the possible design elements proposed. No bill has been introduced, so these points are subject to change.
Reportedly floated by the Brown Administration, the new proposal is the latest in a bid to design cap-and-trade legislation capable of securing a two thirds majority required to safeguard the program’s auctions from future legal challenges. Unlike Senate President Kevin De León’s SB 775, it is understood that new proposal recommends a continuation of ARB’s current program. The focus of the new proposal centers around cost-containment while maintaining environmental integrity. This includes language regarding price ceilings, offsets, industrial allowances, and other market mechanisms designed to prevent allowance price spikes.
EJ Air Quality Concerns
A separate proposal has been put forward to address concerns over local air quality, particularly among disadvantaged communities. Unlike Garcia’s bill that had proposed to integrate local pollution reductions with cap-and-trade, the latest proposal suggests an approach to reduce local pollution, including increased monitoring and reporting, rather than coupling criterion pollutants to greenhouse emissions covered under the state’s carbon program.
At a glance
Designing a cost-effective emissions reductions program whilst adhering to the legitimate concerns of environmental groups has continued to be a challenge for California’s policy makers. De León’s anti-market bill was stopped early in it’s tracks by mounting opposition whilst Garcia’s AB 378 failed to gain the votes in the Assembly earlier month. Although less extreme than De León’s SB 775, both bills had proposed more disruptive amendments and failed to achieve the support where needed.
With market participants already invested in ARB’s current program, the less transformative proposals put on the table this week, could be seen as more favorable outcome to industry than other alternatives floated. The continuation of the program through to 2021 would maintain the value of instruments acquired before. Demonstrating the new wave of confidence, prices on the current front contract rose by around 1.5% to reach a peak of USD 14.36 on Wednesday.
Where to next?
With much still to be discussed, ARB’s cap-and-trade amendment package was scrapped from ARB’s board meeting this month. In order to reflect elements of a new signed legislation, the Scoping Plan would also have to be revised. In the meantime, negotiations are continuing in the Capitol.
CaliforniaCarbon.info will be bringing you all the latest policy news and analysis as and when developments occur. Stay tuned!