November 2, 2014 by CaliforniaCarbon.info
CaliforniaCarbon.info, November 2, 2014: California carbon allowances (CCAs) on the secondary market continued to trade at above $12 in the last week, while over 3.4 million instruments were contracted for forward delivery via the InterContinental Exchange (ICE), as the cap-and-trade market moved into a crucial November.
On Nov 3, all entities with emissions covered under the first period of the program will have to surrender compliance instruments (either CCAs or offsets) to the value of thirty percent of their 2013 emissions. Trading on ICE for the V2013, the only eligible compliance vintage for 2013 emissions, ground to a complete halt, as participants needing to make up a shortfall (if any) likely turned to the spot market given the imminence of the deadline.
Nevertheless, at 3,421,000 for weekly traded ICE volume, this week is only slightly off the previous two weeks, which both fractionally cleared 4 million. The V2015 instrument saw the most activity, with 1.7 million contracted in total. The V2015 has seen increased activity in recent weeks, with participants looking to get in position ahead of the start of the compliance year.
November will also bring the first combined auction with Quebec, with whom California officially linked its cap-and-trade program at the beginning of this year. Quebec’s market has been relatively sluggish; entities face triennial but not annual obligations, which means transport fuel distributors (who contribute an even larger 42% of Quebec’s covered emissions given the province’s hydro-dependent power sector) do not need to surrender anything for another four years. This has not stopped activity on the V2014 and V2017 (the two vintages to go on auction), which constituted the rest of the week’s activity.
Just shy of 1.2 million V2014s were contracted on ICE, all of which will deliver no later than in March 2015. Prices climbed by five to seven cents over the week for deliveries in 2014 and 2015, regaining levels last seen when prices peaked some three weeks ago. The recent increase in price has been attributed both to the looming compliance surrender deadline and to the fact that the price floor rises five percent over inflation in 2015 (estimated to be in the vicinity of $12, soon to be confirmed by ARB). The broker-traded spot price rose four cents from $12.10 to $12.14, and it will be interesting to see how this interacts with the auction clearing price.
The price increase was much less slight for the V2017, which gained a cent for the Dec 14 delivery, moving from $11.84 to $11.85. In the broker-traded OTC market, in fact aggregated prices lost seven cents (from $12.00 to $11.93). As the results of the CaliforniaCarbon.info Sentimeter survey might also suggest, expectations are bearish heading into the advance auction, where a non-clearing result will see allowances sold at the floor of $11.34.
ARB is also set to release the emissions data reported for 2013 next week, which may impact market sentiment and prices.
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