Unlikely companion provides fresh optimism as auction approaches

May 15, 2017 by Ronjoy Bezbarua

California’s carbon market was gifted a light relief from the negative trends of recent past this week as the California Chamber of Commerce (CCC) chimed in on the concurrent cap-and-trade post 2020 debate. Less than a month ago the business advocacy group had been a contributing partner to the uncertainty observed in the market, seeking to appeal California’s appeal courts positive ruling on the program to the state’s Supreme Court. Prompted by the highly divisive SB 775, which would incur far tighter restrictions on businesses, the advocacy group have swiftly changed their tact, announcing on Wednesday that they plan to support the Air Resources Board’s current program.

Reacting to Thursday’s news, the CCA benchmark (Dec 18) gained USD 0.10 on the previous day’s close, settling at USD 14.17 on Friday after a mid week low of USD 14.05. Healthy volumes of trade for the current vintage were observed throughout the week, the bulk of which was traded on Wednesday as prices started to climb. A total of 9,303,000 tons were traded during the week, the V16 CCA being the only other vintage to trade with 25 units changing hands.

In terms of delivery, however, the contribution was spread far more evenly across contracts. Next month’s front contract, Jun 17, witnessed the largest amount of trade with 2,835,000 tons clearing. Marginally less volumes exchanged on the Dec 17 contract, this year’s benchmark, whilst the Mar 18 contract also saw trading for the first time since early last month with 2,550,000 tons passing hands.

With participants looking to set positions with allowances gained from this week’s quarterly joint auction, a surge in open interest creation was felt on the market. Compared to the previous week, there was a net change of 8,377,000 contracts.  The largest contribution to this change in outstanding commitments was from the Jun 17 contact, also the highest contributor of traded volume for the week. A net change of 3,630,000 contracts was observed on this delivery. 2,550,000 contracts were opened for the Mar 18 CCA whilst the Sep 18 also saw a high net change of 2,000,000 contracts. Conversely, the current benchmark, Dec 17, saw a decline of 308,000 contracts. The current front and Dec 18 also saw a positive change of 205,000 contracts and 300,000 contracts respectively.

The sporting cliché, a game of two halves, could be used to describe CCAs overall pricing trend this past week. Continuing the downward trend to Tuesday, prices were alleviated on the back end of the week, with the current front contact closing the week at USD 14.01, USD 0.04 up from the previous week’s close. Prices still remain, however, substantially lower than before the announcement of the proposed program overhaul supported by Senate President Kevin de León.

To use another cliché, this week’s cap-and-trade headline regarding the CCC may reflect the attitude of some of California’s largest emitters that the current program represents the ‘lesser of the two evils’ when compared with the alternatives. With the absence of less business friendly bills in Ontario, business groups have been calling on the government of Ontario to suspend the province’s recently introduced cap-and-trade program. The week passed without a single trade on the market, dropping CAD 0.11 over the week and closing at CAD 19.24 at the close of play on Friday.

Billy Hamshaw (billy@californiacarbon.info)

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