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WCA Schedule
- Q1 Auction Application Deadline
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February 5, 2024 |
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February 23, 2024 |
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March 6, 2024 |
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March 13, 2024 |
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- Q2 Auction Application Deadline
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May 6, 2024 |
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May 24, 2024 |
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June 5, 2024 |
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June 12, 2024 |
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- Q3 Auction Application Deadline
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August 5, 2024 |
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August 23, 2024 |
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September 4, 2024 |
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September 11, 2024 |
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- Q4 Auction Application Deadline
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November 4, 2024 |
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November 22, 2024 |
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December 4, 2024 |
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December 11, 2024 |
News Update
- Washington updates 2024 auction reserve prices and budget. The Washington Department of Ecology (ECY) has released pricing information for the regular quarterly auctions scheduled for 2024. In 2024, the state will offer vintage 2024 and 2027 allowances at auction, and the floor, ceiling, and both allowance price containment reserve (ACPR) trigger prices will see an 8.2% increase due to the price adjustment factor set by ECY, calculated by adding 5% plus the rate of inflation determined by the consumer price index (CPI). Further breakdown of reserve prices and budget updates can be found in the following “Auction Update” section.
- Q4 auction sells out 9.6 M allowances. The Q4 auction held on Dec. 6th sold all 9.6M allowances in the last auction of 2023, compared to the 8.6M offered in Q3. All 7.1M vintage 2023 allowances cleared at $51.89, just $0.01 below the Tier 1 APCR trigger price, alongside all the 2.5M vintage 2026 allowances which cleared at $45.00.
- November APCR sale sells out 5M allowances. The second APCR sale held by ECY on Nov. 8, 2023, sold all 5M allowances offered from the containment reserve at the Tier 1 price of $51.90, nearly 5 times the 527,000 allowances sold in the previous APCR sale held in August. The reserve sale saw financial participation from 30 entities, 3 of which were new entrants to the state’s cap-and-invest auction compared to the 4 new participants out of the 32 financial participants in the previous sale.
- Washington releases draft legislation for WCI linkage. ECY in late November published a draft cap-and-trade bill consisting of amendments to ease linkage with the California- Quebec program in the Western Climate Initiative (WCI) market, including synchronizing compliance periods, adjusting allowance limits, and offset restrictions. The most notable part of the draft legislation would increase the allowance purchasing limits to 25% of the allowances offered at any single auction, up from the current 10% limit, and would remove the vintage year requirements for the 10% allowance holding limit on general market participants. The draft bill also mentions changes that would allow covered sources to use offsets that provide direct environmental benefits (DEBS) to meet 5% of their emission obligations if they provide DEBS to a linked jurisdiction. ECY is taking public comments on the proposed bill until Dec. 31st, 2023, before going to session with lawmakers on Jan. 8th, 2024.
Auction Update
AUCTION #4 OVERVIEW:
The Washington State Department of Ecology (ECY) released the results from the state’s fourth cap-and-invest auction held on December 6th, 2023:
- The settlement price for the current auction was $51.89 per allowance at a 1.48 bid-to-cover ratio.
- This auction reported 55 qualified bidders.
- Of the 55 qualified bidders, there were 9 new participants.
Current Auction – 2023 Vintage
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Clearing Price
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$ 51.89
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Floor Price
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$ 22.20
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Bid Ratio
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1.48
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Allowances Offered (Current)
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7,142,146
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Allowances Sold (Current)
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7,142,146
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HHI*
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592
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Advance Auction – 2026 Vintage
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Clearing Price
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$ 45.00
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Floor Price
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$ 22.20
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Bid Ratio
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1.66
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Allowances Offered (Current)
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2,449,760
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Allowances Sold (Current)
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2,449,760
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HHI*
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692
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* Herfindahl-Hirschman Index (HHI) ranges from 0 to 10,000. A lower number indicates a higher level of competition, and a higher number indicates greater market concentration among fewer entities.
SUMMARY:
Washington’s fourth cap-and-invest auction reported 55 qualified bidders, 9 of which were new participants. All 7.1M vintage 2023 allowances offered in the current auction were sold at a 1.48 bid ratio, starting at the floor price of $22.20 and closing at $51.89, just $0.01 short of hitting the APCR Tier 1 Trigger Price of $51.90. The current auction settlement also came in $2.11 below the $54.00 settlements seen on ICE the previous day. This marks the second lowest settlement price since the program’s second auction held in February which closed at $48.50.
All 2.5M vintage 2026 allowances offered in the advance auction were sold at a 1.66 bid ratio, starting at the floor price of $22.20 and closing at $45.00, $13.88 higher than the previous settlement price of $31.12 seen in the May advance auction.
MOVING FORWARD:
Since the final current auction for the year settled below the APCR trigger price, the remaining 1.9M allowances in the 2023 reserve will be rolled over into the 2024 reserve budget for a total of nearly 9.9M allowances, making 2024 the year with the most reserve allowances through 2026. As the trigger price was not hit, the next APCR sale will follow the next regular auction scheduled for March 6th, 2024.
Allowance Price Containment Reserve (ACPR) Budgets:
Emissions Year
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ACPR**
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2023
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8,000,000
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2024
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9,900,000
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2025
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3,000,000
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2026
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700,000
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** ACPR supply for a given year is calculated by dividing the remainder of the APCR budget for that year divided by the number of potential APCR auctions left in the same year.
2024 AUCTION PRICING:
2024 Auction Price Updates
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Floor Price
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$ 24.02
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Ceiling Price
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$ 88.15
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Tier 1 Trigger Price
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$ 56.16
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Tier 2 Trigger Price
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$ 72.15
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ECY has also updated the auction prices for 2024. Each year the adjustment factor is determined by adding 5% plus the rate of inflation as measured by the most recently available 12 months of consumer price index data for urban consumers on the first business day in December each year.
Offsets Update
- Washington requires carbon offsets used for compliance to provide direct environmental benefits to the state (DEBS), but the proposed draft legislation could loosen this requirement to also allow offsets that provide DEBS to linked jurisdictions or the state of Washington. However, 50% of the offsets must still come from projects providing DEBS to the state if used for the first compliance period, and 75% for the second.
- While ECY is proposing changes regarding carbon offsets, the state's offsets will remain "under the cap", meaning ECY will reduce the number of allowances available to compliance entities by the number of offsets used, unlike California which considers offsets to be outside the cap.
- Offset Developers are hoping the first Washington Carbon Offsets (WCO) will be issued in Q1 or Q2 2024 as applications have already been submitted to ECY.
WCA Pricing Update
Pricing as of December 14th, 2023:
- Vintage 2023 – Dec. 2023 Delivery: $52.75
- Vintage 2023 Average Daily Price (Nov. 2023): $54.42
Market Update
- Dec-23 allowances saw a slight drop from $53.30 down to $53.00 in the first 3 days of the month before opening the first full week of the month at $53.60 on Nov. 6th and ticking down to $53.30 on Nov. 10th. Prices retraced up to $53.66 on Nov. 13th to open the second week before skyrocketing to $54.88 overnight, then to $56.00 the day after to close out the week, each session posting new highs for the month over the course of 4 days. The highest price for the month was seen at the beginning of the third week on Nov. 20th, at $56.25 with prices holding at the $56.00 level through Nov. 27th before returning to $55.00 to close out the month.
- All 7.1M vintage 2023 allowances offered in the quarterly auction held on Dec. 6th cleared at $51.89, just $0.01 below the Tier 1 APCR trigger price, marking the second lowest auction settlement price seen in the program the February auction which cleared at $48.50.
- Nov-23 allowances settled on ICE for $53.05 on Nov. 7th, the day prior to the APCR sale, but traded at $55.25 in the afternoon session immediately following ECY releasing the APCR sale results on Nov. 15th, Dec-23 allowances moved similarly, settling at $55.05 on ICE the day prior to the sale, and traded up to $55.50 in the afternoon session following the reserve sale results.
Figure 1. WCA Daily Transactions (Jan. 2023 to Present)
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WCA Pricing (Vintage 2023)
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Dec. '23 Delivery
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Prompt Delivery
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Average Daily Price (YTD):
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$ 57.02
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$ 58.58
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Average Monthly Price (September 2023):
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$ 54.63
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$ 54.42
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2023 Highest Daily Price:
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$ 70.00 (Apr. 14th, 2023)
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$ 67.75 (Aug. 22nd, 2023)
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Questions? Contact our team for more information: environmental@aegis-hedging.com
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