W21: WCI Price Graph

The benchmark contract increased USD 0.03 this past week settling at USD 31.73/t on Thursday (25 May). This is a 0.09% increase from last Thursday’s (18 May) settlement price of USD 31.7/t. The positive trend in the CCA V23 Future Dec-23 contract this week can be attributed, in large, to California and Quebec regulators announcing a workshop in June at which they will discuss updates to the joint carbon market to better align it with state and provincial decarbonization targets.

On Wednesday (24 May) regulators from California and Quebec said that they will holding a workshop on 14 June to talk about what updates will be needed to strengthen the linked cap-and-trade program so that is better able to achieve the targets set out in 2022 Scoping Plan. Regulators will be looking specifically at updates to the annual emissions budget, allowance bank, utilization of offsets, and the role of carbon capture and storage (CCS) in helping the member states achieve their GHG reduction targets. California regulators will then have to vote on the final draft by the end of next year with implementation by 2025. Quebec regulators will meet with stakeholders in the coming months and could have regulatory changes by the end of this year. The announcement has had a slight impact on market prices this week as market entities have long been waiting for a timeline regarding when and what the updates to the market will be. There will be a more bullish market impact following the 14 June meeting when details of the updates to the cap-and-trade program are made more apparent to market participants. Materials for the workshop will be posted on 13 June at 12:00 PST.

 were published on Wednesday (25 May), revealing the highest settlement price since May 2022. The V23 contract settled at USD 30.33/t – up USD 2.48 from the Q1 auction in February. The USD 30.33/t settlement came at a USD 0.01 discount to the front-month contract on the 24 May. The V26 Advanced Auction settlement price also settled strong at USD 30.05/t – the highest since Q4 2021. All of the 56,084,237 V23 and 7,577,000 V26 allowances were sold in the auction, 86.36% and 77.13% of which were purchased by compliance entities respectively. The high auction settlement price comes as regulatory updates to strengthen the program, and subsequent higher allowance prices, are motivating a higher demand for allowances in the short-term. The publication of the auction results has had no immediate impact on the benchmark contract, as many financials are awaiting an agreement on the US debt ceiling before further engagement with the market.

The SB-9 bill was passed last week. The bill set parameters for the role of the California Air Resources Board (ARB) in analyzing and reviewing the updates needed for the state’s carbon market as well as a 1 January 2025 deadline for the implementation of the program updates. The passing of the bill had no significant impact on CCA prices as it does not provide any specifics on the scale and details of the updates to the program.

The SB-12 bill, which aimed to increase California’s 2030 GHG reduction target to 55% below 1990 levels, was unsuccessful in a Senate Appropriations Committee vote late last week. The bill would have increased the state’s decarbonization target by 7% from the 48% reduction target outlined in the 2022 Scoping Plan and 15% from the current 40% target. The bill’s failure, although thought to be bearish for the CCA market, had no substantial impact on contract prices in the short-term. As similar bills have historically failed to pass through the State Senate, the bill’s failure was already priced into market expectations.

Earlier this week, the California Air Resources Board (ARB) released a series of potential updates to strengthen the state’s low carbon fuel standard (LCFS) ahead of the 

. ARB regulators have stated their intent to tighten the carbon intensity (CI) target for 2030 to better align the program with the updated decarbonization targets from the 2022 Scoping Plan. Potential updates outlined include the implementation of an auto-acceleration mechanism (AAM) that would change the CI timeline based on market data without formal regulatory change. The AAM would consist of a price trigger and a credit or deficit trigger that would adjust market conditions to maintain the program’s stringency and ability to achieve the LCFS 2030 target. The announcement has had no immediate impact on the CCA market but, if implemented, the more ambitious LCFS program would be bullish for CCA prices in the medium-term. It would, however, be bearish in the long-term as it would work to drive down prices for renewable fuels in the transportation sector – decreasing sectoral emissions covered under the cap-and-trade program.

Recent contention between US officials in reaching a deal on the debt ceiling has put financials on edge. The US has until 1 June to reach a deal between the Biden Administration and Congress, but disagreement between Republicans and Democrats on finalizing an agreement has made many wary of a potential default and the subsequent economic repercussions if nothing is passed. The Biden Administration has shared that officials have had promising meetings in recent days that have eased some concern of a poor economic outlook. The inability to reach a consensus has mitigated risk-on behavior by financials which has kept CCA prices trading within a tight range this past week.

The benchmark contract price in the coming week is highly dependent on whether or not US lawmakers are able to reach an agreement on the debt ceiling by the 1 June deadline. Financials are unlikely to engage in speculative behavior while the uncertainty persists. If the 1 June deadline is met, it will be bullish for CCA prices as there will be more market reaction to the high auction settlement price from the Q2 auction. In the meantime, CCA prices will likely stay involatile as market entities wait in anticipation of a deal.

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