Hot Summer Ahead for California Carbon
California is in the midst of a heat wave with two nuclear plants down. The Air Resources Board prepares major regulatory changes to the program rules. How long will CCA prices ignore the real world?
California is experiencing today one of its worst heat waves in years, days after PG&E announced the unexpected temporary shut down of one of the two reactors at its San Diablo Nuclear plant, a 1,122 MW shortfall for Northern California power market. Since San Onofre’s nuclear plant won’t reopen at all, California is now struggling with meeting its peak demand under tough conditions – CA ISO issued yesterday a rare call for conservation across the state.
Meanwhile, Obama also turned on the heat on climate change, announcing a slew of federal regulations and incentives to reduce emissions and support climate adaptation across the country. The announcement bolsters California’s program, and will help keep prices low over the long term.
No rest for the weary – the Air Resources Board powers on with a number of regulatory reforms. Natural gas allocation was on the agenda early June, followed by the kickoff for the Scoping Plan Update. This high level review of California’s climate policy will be crucial in setting long term targets – 2030 and 2050, which will be a major driver of prices in the carbon market.
The latest ARB workshop focused on compliance timeline, transparency and price containment. The underlying question is: how much will it cost to meet California’s target – not so much the 2020 target, but the 2030 and beyond target – and is California willing to bear that cost? Our analysis weighs pros and cons of importing new credits and borrowing from the future.
The summer promises to bring more heat and more regulatory reforms, and maybe even the first official ARB offsets! CCA prices have safely stayed under $15/t so far – how long before the $150+ power prices push them past this resistance point?
Emilie Mazzacurati, Managing Director, Four Twenty Seven
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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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