Newsletter: Why Did Prices Crash at the California Carbon Auction?

 

Read our analysis of California’s last auction results
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Why Did Prices Crash at California’s Carbon Auction?
California carbon prices took a hit last week as the fourth auction cleared at $12.22 for V13 allowances and $11.10 for V16 allowances. 

CCA V13 contracts closed at $12.40 on ICE on Friday, a one dollar drop from the week before, and brokers reported a boost in activity as buyers sought to take advantage from the lower prices. In our view, the slowing demand for V13 allowances reflects the fact that many participants have already bought what they need for the year.

In contrast, demand for V16 allowances surged, signaling a boost in confidence in the programs’ long term prospects. Secondary market activity and prices for V15 and V16 allowances were also on the rise last week, with V15 closing at $12.05 and V16 at $12.55 on Friday. Read our post Weak Demand Sends Mixed Price Signals in California Carbon Auction for a detailed analysis of the auction results and participants.

The discussion is still ongoing regarding bill SB 605. In its July 3rd version, the bill restricted offset projects in the AB 32 cap-and-trade regulation to projects based in California. Such a restriction would cut available offset supply by 70 to 90 percent compared to current projections, worsening the expected shortage of credits available for use in the California carbon market, and escalating credit and allowance prices. These provision will probably be amended to include offset projects located in the US or in WCI partner jurisdictions. Whether international credits, REDD specifically, will make the cut is still uncertain – a change to that effect would wipe out a large potential source of supply for the California market, and would remove a source of much needed support for REDD globally.

That same SB 605 bill also mandates that funds in excess of the $500 million loaned to the General Fund be spent on programs and projects located within and benefiting disadvantaged communities, a popular provision that has drawn support from many social and environmental organization, and makes it likely to bill will be adopted on one form or other.

Is your Business At Risk from Climate Change?

Investors and stakeholders now routinely ask for climate risks and opportunities disclosure, and the bar is set to be raised as climate adaptation has been identified as a policy priority by President Obama. Four Twenty Seven has partnered with ISOS Group to provide a special session on climate risk disclosure as part of ISOS’s Sustainability Reporting Training course on September 4-5 in Mountain View, CA. Participants will learn about local and global climate impacts and most exposed sectors, tools to identify risks and opportunities across the value chain, and best practices for reporting climate risks.

Selling California Auctions

In case you missed it – read our primer on auctions: Selling California Auctions (Carbon Market Tracker, In Focus #20, May 2013), published jointly with Carbon Credit Capital LLC. The ten-page downloadable report provides a thorough description of the auction mechanics, participant dynamics, the role of utilities, and the use of auction revenues – a must-read for market participants!

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Four Twenty Seven provides research and consulting services on carbon markets, climate policy and climate risk. Email or call if your organization needs help with its climate strategy!

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Upcoming Training Course

Registration is open for our next training course:

September 25-26, 2013,
San Francisco, CA

This two-day course provides an in-depth training on California cap-and-trade from an economic, regulatory, legal, and financial perspective. It will provide busy professional with a full update on all the recent rule changes and market developments, and delve into technical aspects of contracting and offset risk management. Click here for the detailed agenda.

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Roundtable: Industry Voices

How will the second period of cap-and-trade affect your sector, your organization, and your competitors? What are emitters doing to prepare for compliance? Join us for a roundtable discussion: 
California Cap-and-trade: Industry Voices, on September 12, 2013 in Los Angeles
featuring business representatives and market experts to discuss the best way to manage carbon risks in the second compliance period. Space is limited – register now!

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427mt.com is the reference blog on California cap-and-trade. Read us for our thoughtful analysis of key market developments, new regulations, and political trends affecting California’s carbon market. Email us with questions or to submit a guest post.