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News Update
- Two offset registries approved for Washington cap-and-invest. The American Carbon Registry (ACR) and Climate Action Reserve (CAR) have been approved to list offset projects under Washington’s new cap-and-invest program. Offset project developers will now be able to submit projects for approval and listing to either of these registries and generate offset credits if they meet the criteria and third-party verification standards set by the Washington State Department of Ecology (ECY).
- WCA trading postponed on Intercontinental Exchange. ICE has postponed its listings of WCA futures contracts that were previously announced to go live on March 27th, 2023. The exchange planned on listing V23 and V24 WCA futures contracts along with a current auction clearing price (ACP) contract. ICE informed AEGIS (but didn’t broadcast to market) the delay was associated with holding limit exemption as ICE stands in between all buyers and sellers on the monthly delivery day, and they have yet to receive exemption from Washington State Department of Ecology to exceed holding limit. ICE has yet to confirm a new listing date but stated that the information will be announced when determined.
- Linkage considerations between WCA and CCA urge rule alignments. As Washington continues to consider linking its carbon allowance market with California, many stakeholders and officials have pointed out Washington’s flexibility in adopting the California program’s designs as a critical factor in the linkage’s success. Altering Washington's program rules to align with California’s could be a challenge as many aspects of the Washington program that differ from California’s are mandated by statute, which would require any changes to go through standard legislative and regulatory processes before implementation. ECY is still taking public input concerning the linkage, aiming to decide this summer on whether to join the jurisdictions in 2025. There will be a public listening session on April 18th as listed on the ECY website.
- Trial date set for Washington carbon market lawsuit. A US District Court has scheduled a three-day bench trial starting on January 2nd, 2024 for the lawsuit filed against the state of Washington by Invenergy, a Chicago based power plant company who operates the only natural gas-powered generator in the state not owned by a Washington-based company. Invenergy alleges that the state has violated the US Constitution's commerce clause, citing discrimination by the WCA program’s allocation of no-cost allowances to in-state power generators.
- Washington proposes remittance for farmers & haulers of agriculture products. Two state lawmakers introduced SB 576, aiming to protect farmers and haulers of agricultural products from rising fuels costs caused by the state’s cap-and-trade program. The proposal would implement a remittance payment amounting to 0.8% of the state’s most recent auction settlement price for each gallon of fuel claimed. The payment program would start in Jan. 2024, funded by revenue from the state’s allowance auctions.
WCA Schedule
- Cap-and-Invest Linkage Discussion – April 18th, 2023
- Q2 Auction Application Deadline – April 21st, 2023
- Q2 Auction Bid Guarantees Due – May 19th, 2023
- Q2 Auction – May 31st, 2023
- Q2 Auction Results – June 7th, 2023
- Q2 Auction Financial Settlement – June 14th, 2023
Offsets Update
- The Department of Ecology has approved the American Carbon Registry (ACR) and Climate Action Reserve (CAR) to list offset projects for the state’s cap-and-invest program.
- There are also offsets in WCI-CITSS system that have been approved by California that will likely be available to comply with the Washington program.
WCA Pricing Update
- Allowance pricing as of April 10th, 2023: $58.00 – Vintage 2023, Apr 2023 Delivery
- Allowance pricing as of April 10th, 2023: $61.00 – Vintage 2023, Dec 2023 Delivery
- The average daily price in March 2023: $51.89 – Vintage 2023, Dec 2023 Delivery
Market Update
- Auction Notice #2 for the May 2023 auction was released on March 31st. The Current Auction will offer 8.585 million V23 allowances and the Advance Auction will offer 2.45 million V26 allowances. Both auctions have a floor price of $22.20, a T1 ACPR trigger of $51.90, and a T2 ACPR trigger of $66.68.
- The ACPR currently holds ~ 18.6 million allowances, but the ECY will not disclose how the reserve volume will be split between tiers until a reserve sale notice is released.
- The previous February auction sold all 6.18 million V23 allowances at $48.50, much higher than the secondary market value at the time.
- WCA prices for December 2023 delivery have climbed by 52% to $61.00 since the trading began in December 2022, marking a new all-time high for the program.
- Given the significant supply cuts of 7% per year and the limited supply of allowances currently allocated, trading volume may remain light until more allocations and allowances are distributed to CITSS accounts.
- The majority of the reported trades and markets being shown are for 25,000 allowances in the futures market. Majority of compliance entities looking to transact in larger volumes, but very sellers in market currently. Therefore, with the addition of another 8.585 million V23 allowances, plus an additional amount (9.3 million if 50%/50% split from Tier 1 and Tier 2) from ACPR if auction clears at $51.90 or above, this could bring some liquidity to market and potentially dampen bullish in prices for a period of time.
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WCA Pricing (Vintage 2023)
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2023 Average Daily Price:
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$ 47.03
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Average Monthly Price (Mar. 2023):
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$ 51.89
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2023 Highest Daily Price (Apr. 6th, 2023):
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$ 61.00
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Questions? Contact our team for more information: environmental@aegis-hedging.com
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