October 12, 2015 by Rahul Rana
CaliforniaCarbon.info, October 12, 2015: Latest data released by the Air Resources Board (ARB) shows that, as at the end of the third quarter of 2015, 331.5 million allowances and offsets have been retired into the compliance accounts of covered entities in California and Quebec. Once compliance instruments are deposited into these CITSS compliance accounts, they may no longer be transferred out.
Of these 331.5 million compliance instruments, a maximum of 168.7 million may be eligible for use during the upcoming biennial surrender (for obligations from the first compliance period of the program). Based on our estimates for 2014 emissions, a further 113.4 million instruments will need to be surrendered before November 2. In Q3, 16.6 million V2013 and V2014 allowances were moved from holding to compliance accounts, alongside some 657,000 offsets.
Covered entities in California have already surrendered 30% of their 2013 obligations in November 2014, leaving them liable for 100.9 million tons for 2013 and a projected 144.6 million tons for 2014, while our estimates also suggest Quebec entities are liable for 18.4 million tons for 2013 and 18.2 million tons for 2014.
To meet their compliance obligations, entities must use allowances of vintages no greater than the compliance year, but can choose to use offsets instead for the first eight percent. Furthermore, a small portion of the compliance obligations can also be met through surrender of future vintages up to the ‘true-up’ allowance amount, subject to an individual entity’s eligibility.
The WCI cap-and-trade program is significantly oversupplied. For the initial two years of the program, the projected oversupply amounts to nearly 32.8 million allowances (21.3 million V2013s and 11.5 million V2014s). When offsets are thrown into the mix, the allowance surplus would grow further. With other factors influencing the availability of offsets in 2014, offset usage at the last surrender amounted to only 1.16% (of the 8% quota) of 2013 obligations. Some 23.7 million offsets may still be used to meet compliance in the first period by California and Quebec entities. However, many entities, especially those with smaller obligations, could opt not to maximize their 8% quotas, given the extra costs and hassles associated with procuring and managing an offsets portfolio. According to the compliance inventory report, there were a total of 19.6 million offsets held in the holding accounts at the end of the last quarter, while some 765,000 offsets had been moved into the compliance accounts.
The trend of early instrument surrenders continued in the third quarter of 2015. A further 50.8 million V2015 allowances were moved into compliance accounts in Q3, bringing the total number of allowances surrendered ahead of time to 162.7 million (161.0 million V2015 and 1.7 million V2017). Entities that do not use the secondary market to manage their positions may prefer to surrender their allowances early, given the limits (13.4 million or 2.9% of the total cap size for 2015) imposed on the holding of allowances in the general account.
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