W11: WCI Price Graph

The CCA V23 Future Dec.-23 contract settled at USD 30.46/t this Thursday (16 Mar). This is a 2.9% week-on-week decrease from last Thursday’s settlement price of USD 31.37/t. The USD 0.91 decrease in the contract price this week comes largely in response to the news regarding Silicon Valley Bank and Signature Bank on Friday and Monday (10-13 Mar). Despite the decrease in price, the benchmark contract maintains prices above the USD 30.00/t threshold.

The USD 0.23 drop in the benchmark contract on Friday (10 Mar), and a further USD 0.50 drop on Monday, are reflective of the announcements of the failure of Silicon Valley Bank and Signature Bank, respectively. The CCA V23 Future Dec-23 contract recovered on Tuesday in light of the government assistance to mitigate the impacts of the banks’ failure and fears of a domino effect in the banking sector being eased. The movement in the contract price in response to these events highlights how the CCA market is currently highly intertwined with macroeconomic sentiment.

On Wednesday (15 Mar) California Senate Environmental Quality Committee (EQC) approved bill SB-12 that aims to reduce GHG emissions by 55% below 1990 levels by 2030. If implemented, the bill would increase the state’s GHG reduction target for 2030 by 7% from the 48% reduction target that was adopted from the 2022 Scoping Plan. The bill will now go to the Senate Appropriations Committee, upon which it will still need approval from the Assembly – where a similar bill failed to foster enough support to pass in August 2022. In order to strengthen SB-12 and gather sufficient political backing, state lawmakers plan to include specific measures within the bill to help achieve the 55% reduction goal. Possible measures include no-trade zones by compliance entities in disadvantaged communities and the introduction of an Emissions Containment Reserve (ECR) – measures that have been outlined previously by the state’s Independent Emissions Market Advisory Committee. If passed, regulators would have to take even more ambitious steps to update the cap-and-trade program in order to reach the new target, which would be bullish market prices.

On the same day, California’s EQC also passed bill SB-261 which would require companies with gross annual revenues over USD 500 million to disclose all associated climate risks to their operations. This bill was passed in conjunction with SB-253, which, if implemented, would make companies with USD 1 billion in gross annual revenue disclose Scope 1-3 emissions. Although these regulatory updates had no immediate impact on the CCA market, they reflect a wave of legislative ambition in California to pressure decarbonization measures throughout the economy. The implementation of these regulatory updates will see increased market activity for CCA contracts in the long term.

One of the largest emitters covered in Washington’s cap-and-invest program is set to have a trial in January next year regarding its lawsuit against the Washington Department of Ecology (ECY). Invenergy’s lawsuit targets ECY’s cap-and-invest regulation on the grounds that it is the only electricity generating station in the state that will not receive free allowances to cover its emissions. Although based in Chicago, the natural gas-fired power generator has a power plant in the state that falls within compliance regulations. ECY is contesting their lawsuit, claiming it is not the only power producer in the program that does not receive freely allocated allowances. A resolution on the matter will not come until 2024.

The growing list of regulatory updates coming from California does not seem to have any significant and long-term impact on the market. Prices will likely see little fluctuation in the coming week – as significant increases in the benchmark contract price will come when a regulatory timeline becomes clearer, and changes to the cap-and-trade program are implemented. As the implementation of regulatory updates will come in the long term, speculative interest in the market is unlikely to pick up in the coming week. The CCA V23 Future Dec-23 contract is, therefore, likely to remain within the USD 30.40-31.30/t range throughout next week.

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Week 11: The benchmark contract remains about the USD 30.00/t threshold this week among regulatory updates and the failure of Silicon Valley Bank

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