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News Update
- California offset issuance dives to 7-mth low, DEBs total plummets. California ARB issued about 109,500 California Carbon Offsets (CCOs) before the second week of February, about 46.7% below the prior issuance of about 208,600 permits. The 109,500 is also 36% below the 171,200 offsets the agency minted for a similar reference period in 2022 and marks the smallest CCO issuance since 84,400 were handed out July 12.
- California offset issuances rebound to 5-mth high, but DEBs still remain a fraction. The ARB issued about 816,500 California Carbon Offsets (CCOs) over the second and third weeks of February– up significantly from the last issuance of about 109,500 permits. It is also the agency’s largest credit distribution since handing out over 1.5 million CCOs in September of last year. However, only 15,700 (1.5%) of the total issuance were tagged with DEBs, still more than the 1,600 the regulators distributed earlier this month.
- California carbon auction price rebounds. The clearing price at California and Quebec's latest carbon allowance auction increased, exceeding the price of the two previous auctions. The Western Climate Initiative (WCI) market partners sold all of the almost 56.4 mln current vintage allowances for $27.85/metric ton offered at the February 15th auction. The settlement price was $1.05/t higher than the auction held in November and 85¢/t higher than the auction held in August, but February’s auction price was still $3/t lower than the record-high set in the May 2022 auction.
- California’s ARB to vote on tightening cap-and-trade program by end-2024. A report from the California Legislative Analyst’s Office (LAO) found the current cap-and-trade program will fall short of hitting the 2030 emissions goal stated in the 2022 Scoping Plan and the existing statutory target of a 40% cut. IEMAC’s 2022 Annual Report also called for numerous changes to the cap-and-trade program that would adjust the allowance supply down to meet California’s climate goals.
- Washington inaugural cap-and-trade auction riddled with uncertainty. Traders are unsure of where Washington state’s first WCI-modelled carbon market sale will settle on Feb 28th. Uncertainty regarding multiple entities’ CITSS approval status and compliance entities’ being choked by uncertain allocation levels are affecting their ability and willingness to bid, but potential support from the small volume on offer and the potential future linkage to the California-Quebec program juxtapose these concerns. Auction summary results to be posted Mar 7.
- Canada sets refrigeration CO2 offset protocol. Canada will allow projects that reduce greenhouse gas (GHG) emissions from refrigeration and air-conditioning systems to generate offset credits for the country’s industrial CO2 emissions program. The new protocol announced on Feb 24th by the Environment and Climate Change Canada (ECCC) lists food processing plants, ice rinks, malls and grocery stores as potential participants.
Offset Update
- ARB has issued an overall 906,022 carbon offsets in February 2023.
- 109,534 issued on February 7th
- 816,488 issued on February 21st
- 17,534 of the CCOs issued are listed as DEBs.
- 245 mln offsets have been issued since inception by ARB and Quebec.
- 1.3 mln Quebec offsets have been issued in total.
California:
Issuance |
ODS |
Livestock |
U.S. Forest |
Urban Forest |
MMC |
Rice Cultivation |
Total |
January '23 |
25,352,815 |
8,852,911 |
198,382,300 |
|
11,139,228 |
|
243,726,987 |
February '23 |
25,352,815 |
8,868,645 |
199,141,169 |
|
11,180,846 |
|
244,543,475 |
Delta |
0 |
15,734 |
758,869 |
|
41,618 |
|
816,488 |
Quebec:
Issuance
|
ODS
|
Landfills
|
Covered Manure Storage
|
Active Coal Mines
|
Active Underground Coal Mines
|
Total
|
January '23
|
674,777
|
636,257
|
|
|
|
1,311,034
|
February '23
(Data pending at the time of this report's release)
|
-
|
-
|
|
|
|
-
|
Delta
|
-
|
- |
|
|
|
-
|
Offsets Pricing
Offset Pricing as of March 3rd, 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) $23.75
- Golden California Carbon Offset (CCOs- DEB) – Spot Delivery $24.40
ARB Schedule
- 2/23/2023 Auction results posted
- 5/17/2023 May 2023 Joint Auction
- 8/16/2023 August 2023 Joint Auction
California Carbon Allowances (CCA)
- Allowance pricing as of March 3rd, 2023: $29.70 – Vintage 2023, March 2023 Delivery
- The average daily price in February 2023: $28.14 – Vintage 2023
Market Update
- The average daily price in February 2023 was $28.14 which was a 0.57% decrease compared to the average price of $28.30 in January 2023.
- This month’s auction price settled at $27.85 on February 15th before the market price which was within pennies of where the market was trading. This was perceived as bullish by the market as previous two auctions cleared below the secondary market.
- Krane Shares Carbon ETFs (both ETFs) held to 13.8 million shares on March 3rd, 2023 compared to 032 million carbon allowance on December 5th, 2022 which was a 13.9% decrease. Furthermore, we are now 4.7 million or 25.4% off the all-time high of 18.5 million California allowances as of February 2022.
- The market was expected to recover 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, and we have seen that in the 1st 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.
- Procuring below $30.00 in near future for any expected shortfall 2021-2023 will likely be below waiting until the months leading up to the November 1st, 2024 compliance dates for 100% of 2021-2023 emissions.
Figure 1. Open Interest on the Intercontinental Exchanges (ICE) - Vintages 2017-2023
Figure 2. CCA Daily Transactions (Spot Contract - January 2022 to Present)
|
2022 Average Daily Price: $28.93 per ton |
2023 Average Daily Price: $28.31 per ton |
2022 Highest Daily Price: $33.50 per ton (January 1st, 2022) |
2023 Highest Daily Price: $29.70 per ton (March 3rd, 2023) |
Questions? Contact our team for more information: environmental@aegis-hedging.com
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