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News Update
- CARB issues more mine and forestry offsets in last issuance of 2022. Six projects received more than 280,000 offsets in the final round of CCO issuances in December. 109,000 CCOs were issued to a project which captures and destroys methane from an active coal mine in West Virginia. The program has issued almost 219 million offsets in 2022, with about 85% going to forestry projects.
- Forestry offsets spark debate. Stakeholders are pressuring regulators to alter the way they award offsets to forestry projects in California’s cap and trade program. There is a push to add remote sensing for the purpose of monitoring, reporting, and verifying California Carbon Offset projects. This comes as some researchers have questioned the validity of the offsets due to wildfires that often impact the state.
- California is a net exporter of credits to Quebec. More than 51 million credits have been transferred from California to Quebec from 2013-2020 according to a report by the WCI market partners. Initially credits flowed from Quebec to California, however since 2015 California has been a net exporter. Quebec has been exceeding its limit on greenhouse gas emissions while California’s emissions have been falling below the cap, which has caused the export of the compliance instruments.
- CCA market approaches 800 participants. Registrants in California’s cap-and-trade program reached a new all-time high in the fourth quarter according to recently published data. Registrants totaled 799 participants, compared to 792 during the third quarter. Despite CCA prices declining throughout 2022, financial participants continue to enter the market, with speculator’s net length rising to nearly 74 million allowances.
- Government report suggests changes to cap-and-trade program. A new report from the Legislative Analyst’s Office said that for the state to hit its 2030 goal of reducing emissions to 48% of 1990 levels, changes will need to be made to the state’s CCA program. The report recommended that the ARB reduce the number of allowances offered is the allowance bank is assessed to have exceeded a predetermined level.
- KraneShares reduces CCA holdings. ETF manager KraneShares has cut its holdings of California Carbon Allowances by 1.37 million tons, bringing the total position to 6.06 million tons. The position is split between December 2023 V23 and December 2024 V24 CCA futures. The position reduction coincides with an announced dividend from several of KraneShares ETFs. CCA prices fell 2.6% following the dividend announcement on December 29th.
- First CCA auction of 2023 will offer lower number of allowances. Around 56 million allowances will be offered in the February 15th WCI auction, 3.5% less than the prior auction in November 2022. The reduction in volume is due to the declining yearly allowance caps, with California’s emission budget falling 4% and Quebec’s by 2%.
- The state of Washington launches Cap-and-Invest program January 2023. Washington modeled a similar trading program as California and Quebec, which has been set up for Washington to potentially link in 2027, which would be the beginning of a three year phase. They have an auction floor price of $22.20 which is very similar to California’s auction $22.21 in 2023 which was done intentionally. The program has historical emissions in the 68 million range and starts with an allocation of 63.3 million, with a 7% cut for the subsequent years. This is a fairly aggressive pace and early trades have occurred at $43 which is significantly higher than California which is currently at $28.60.
Offsets Update
- ARB has issued an overall 450,965 carbon offsets in December 2022
- 164,242 issued on December 13th
- 286,723 issued on December 27th
- 193,075 of the CCOs issued are listed as DEBs
- 1 mln offsets have been issued since inception by ARB and Quebec
- 3 mln Quebec offsets have been issued in total; 0 credits issued in December 2022
California:
Issuance
|
ODS
|
Livestock
|
U.S. Forest
|
Urban Forest
|
MMC
|
Rice Cultivation
|
Total
|
November’22
|
25,223,344
|
8,652,900
|
198,008,073
|
|
10,778,989
|
|
242,663,306
|
December’22
|
25,223,344
|
8,802,130 |
198,183,813 |
|
10,904,984 |
|
243,114,271 |
Delta
|
0
|
149,230
|
175,740
|
|
125,995
|
|
450,965
|
Quebec:
Issuance
|
ODS
|
Landfills
|
Covered Manure Storage
|
Active Coal Mines
|
Active Underground Coal Mines
|
Total
|
October’22
|
674,777
|
629,157
|
|
|
|
1,303,934
|
November’22
|
674,777
|
629,157
|
|
|
|
1,303,934
|
Delta
|
0
|
0
|
|
|
|
0
|
Offsets Pricing
Offset Pricing as of January 12th, 2023:
- California Carbon Offset (CCO3) - (3 years of Buyer Liability) $18.15
- Golden California Carbon Offset (CCOs) – Spot Delivery $18.80
- California Carbon Offset (CCO3 - DEB) - (3 years of Buyer Liability) $22.65
- Golden California Carbon Offset (CCOs- DEB) – Spot Delivery $23.30
ARB Schedule
- 1/11/2023 Arb posts compliance offset issuance data
- 2/1/2023 Summary of market transfers completed in 2022 posted
- 2/15/2023 February 2023 joint auction
- 2/23/2023 Auction results posted
California Carbon Allowances (CCA)
- Allowance pricing as of Jan 12th, 2023: $28.60– Vintage 2023, Jan 2023 Delivery
- The average daily price in Dec 2022: $27.99 – Vintage 2022
Market Update
- The average daily price in December 2022 was $27.99 which was a 1.28% increase compared to the average price of $27.63 in November 2022.
- The market had dropped to $25.86 on November 28th after the November auction settle of $26.80 but recovered in December and hit a monthly high of $28.86.
- Krane Shares Carbon ETFs (both ETFs) dropped to 14.3 million shares on January 12th, 2023 from 16.032 million carbon allowance on December 5th, 2022 which was a 10.8% decrease. Furthermore, we are now 4.2 million or 22.7% off the all-time high of 18.5 million California allowances as of February 2022.
- The market is expected to recover in prices in 2023 as Gov Newsom and others continue to pressure ARB to make additional cuts to environmental programs to reach ambitious targets on GHG emissions for the state. While the all-time high $35.20 in November 2021 may take some time to reach, seeing pricing back over $30.00 in 2023 is expected by many.
Figure 1. Open Interest on the Intercontinental Exchanges (ICE) - Vintages 2017-2023
Figure 2. CCA Daily Transactions (Spot Contract - January 2021 to Present)
2021 Average Daily Price: $22.99 per ton |
2022 Average Daily Price: $28.93 per ton |
2021 Highest Daily Price: $35.14 per ton (November 15th, 2021) |
2022 Highest Daily Price: $33.50 per ton (January 1st, 2022) |
Questions? Contact our team for more information: environmental@aegis-hedging.com
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