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News Update
- California Carbon Offset supply growth slowing. The number of new carbon offsets entering the CCA program is declining. The decrease in supply has partially been attributed to methane projects transitioning to California’s LCFS program, which can provide a larger incentive for the project developers.
- California models more ambitious 2030 GHG reduction for final Scoping Plan. The ARB is modeling a 48% reduction below 1990 levels instead of a 46.8 emissions modeled in the draft Scoping Plan in May 2022. The reason was to attempt to reach carbon neutrality no later than 2045 with a least an 85% reduction in GHGs below 1990 levels as regulated in AB-1279.
- Emissions from California power sector are nearly flat year-over-year. Emissions data from the CAISO region through September 2022 show a decrease of 0.03%. As of July, renewables are no longer responsible for most of the power generation in California, as gas-fired power has taken a larger share of the power-mix. Renewable power generation was only 26% of the grid in September, which is the lowest recorded value since January of this year.
- Expected floor price in 2023 increases to $22.21 after 7.7% inflation for October 2022. After the September CPI was reported as 8.20%, October CPI did come in lower at 7.7% as inflation is moving lower off the highs in Q3 ’22. Despite consistently high inflation prints, CCA prices are still trading higher than the expected future floor price.
- New legislative action may impact WCI price forecasts. California state legislators approved nine new pieces of environmental legislation in Q3 of this year. These new laws aim to lower the states emissions and help it meet its climate goals. Current estimates for the total effect of these bills are for an emissions reduction of 13% by 2030, and 27% lower by 2045. The new legislation and bills are:
- AB-1279: Net zero emissions no later than 2045
- SB-905: A regulatory framework for carbon capture and storage to be implemented by 2025
- SB-846: Extending the Diablo Canyon nuclear plant through 2030
- SB-1020: 100% of electricity generated from renewable sources by 2045
- SB-1137: A 3,200 ft buffer zone between new oil and gas wells and public facilities
- SB-1174: Energy infrastructure permitting reform
- SB-887: Development of more electrical transmission infrastructure
- Advanced Clean Cars II: 100% of light-duty vehicles sold to be zero emission vehicles
- Advanced Clean Fleets: 100% of medium and heavy-duty vehicles sold to be zero emission vehicles
Offsets Update
- ARB has issued an overall 1,507,947 carbon offsets in October 2022
- 605,827 issued on October 11th
- 902,120 issued on October 25th
- 374,370 of the CCOs issued are listed as DEBs
- 4 mln offsets have been issued since inception by ARB and Quebec
- 3 mln Quebec offsets have been issued in total; 0 credits issued in October 2022
California:
Issuance
|
ODS
|
Livestock
|
U.S. Forest
|
Urban Forest
|
MMC
|
Rice Cultivation
|
Total
|
September’22
|
25,146,683
|
8,526,793
|
196,901,770
|
|
10,326,610
|
|
240,902,856
|
October’22
|
25,223,344
|
8,541,245
|
197,902,181
|
|
10,743,033
|
|
242,409,803
|
Delta
|
76,661
|
14,452
|
1,000,411
|
|
416,423
|
|
1,507,947
|
Quebec:
Issuance
|
ODS
|
Landfills
|
Covered Manure Storage
|
Active Coal Mines
|
Active Underground Coal Mines
|
Total
|
August’22
|
674,777
|
629,157
|
|
|
|
1,303,934
|
September’22
|
674,777
|
629,157
|
|
|
|
1,303,934
|
Delta
|
0
|
0
|
|
|
|
0
|
Offsets Pricing
Offset Pricing as of November 9th, 2022:
- California Carbon Offset (CCO3) - (3 years of Buyer Liability) $18.05
- Golden California Carbon Offset (CCOs) – Spot Delivery $18.70
- California Carbon Offset (CCO3 - DEB) - (3 years of Buyer Liability) $21.65
- Golden California Carbon Offset (CCOs- DEB) – Spot Delivery $21.30
ARB Schedule
- 11/9/2022 ARB posts compliance offset issuance data
- 11/15/2022 November 2022 joint auction
- 11/23/2022 Auction results posted
- 12/1/2022 CARB announces 2023 auction reserve price and auction budget
California Carbon Allowances (CCA)
- Allowance pricing as of Nov 9th, 2022: $27.92– Vintage 2022, Nov 2022 Delivery
- The average daily price in Oct 2022: $28.00 – Vintage 2022
Market Update
- The average daily price in October 2022 was $28.00 which was a 4.21% increase compared to the average price of $26.82 in September 2022.
- The market has drifted back below $27.76 on November 10th after reaching a two-month high of $29.72 on October 31st. The likely reason for the pullback is the upcoming November 15th, 2022 auction which is the last one in 2022. The August auction cleared $27.00 which was ~ $3.50 below where the market was trading. Therefore, the market has pulled back to closer where the August auction cleared.
- On October 31st, open interest in the ICE for vintage 2022 CCA was equal to 230,441, a 9.7% decrease compared to the beginning of the month. Average September vintage 2022 CCA open interest was 264,693 contracts.
- KraneShares Carbon ETFs (both ETFs) held 16.843 million carbon allowance on November 9th which was a 7.7% decrease from 18.26 million on August 31st. Furthermore, it stayed behind 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. Therefore, obtaining prices below $28.00 in 2022 may be a good tactic to migrate price exposure to the upside in 2023.
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: $29.14 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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