W38: WCI Price Graph

The CCA benchmark contract decreased 1.0% week-on-week. The benchmark contract settled at USD 37.33/t on Thursday (21 Sep) – down USD 0.38 from last Thursday’s all-time high settlement price of USD 37.71/t. The volume trade of the front-December contract picked up this week, totaling 19.44 Mt – up 99% week-on-week. The CCA contract dropped from last week into the first half of this week before picking back up on Wednesday (20 Sep), settling at USD 37.41/t. The trend in price this week is attributed a mitigated response by market entities to the announcement of California’s next regulatory meeting regarding updates to strengthen its cap-and-trade program and macroeconomic pickup later this week.

On Monday (18 Sep), California’s Air Resources Board (ARB) announced that the next regulatory meeting to update its cap-and-trade program 

 from 09:30 – 16:00 PST. Earlier this summer, the California ARB began the process to better align its cap-and-trade program with the updated climate targets adopted in the 2022 Scoping Plan. The Scoping Plan most notably increased the state’s 2030 GHG target by 8% to 48% below 1990 levels and accelerated its timeline for its 85% GHG reduction target five years to 2045. So far, ARB regulators have proposed three allowance reduction scenarios that would entail an allowance cut from anywhere between 115 to 390 million through 2030.

The scenarios proposed in the 27 July regulatory meeting exerted significant bullish pressure on CCA prices, playing a role in creating the USD 37.00/t supporting price seen this month. Monday’s announcement had a slight bullish impact on CCA prices – with the benchmark contract increasing USD 0.11 from Monday to Tuesday. There will likely be a greater spike in contract prices following October’s meeting after market entities gain further clarity on the program updates. ARB regulators will provide more information regarding which allowance supply scenarios may be adopted in the program updates, potential changes to market stability mechanisms, and post-2030 allowance supply budgets. Current regulation has the California cap-and-trade program set to run until 2030. Utilizing the program to help achieve the states’ 2045 GHG reduction targets, therefore, gives a positive signal that ARB regulators will be officially extending it in the upcoming rulemaking.

 that it will not be increasing interest rates this month – maintaining the 5.25-5.50% rate. They did, however, indicate a likely increase in the interest rate before the year’s end. Wednesday’s announcement had a slight bullish impact on CCA prices – which increased USD 0.08 the day of the announcement before coming back down on Thursday.

On Friday (15 Sep), ARB regulators released the 

 for the Q4 auction that will take place on 15 November. Over 57.6 million allowances with vintages from 2013, 2014, 2016, 2018, 2020, 2021, 2022, and 2023 will be offered in the Current Auction and just under 7.6 V26 allowances will be offered in the Advanced Auction. The Current Auction offering is nearly 2 million allowances greater than the previous auction. Auction applications close on 16 October for entities wanting to participate in the Q4 auction and the auction results will be published on 22 November.

CCA prices will stay above the USD 37.00/t supporting price level in the upcoming week. Bullish pressure on contract prices following the announcement of the next meeting by the ARB to continue the process of strengthening the state’s cap-and-trade program will keep prices up in the coming week. Market entities will likely continue participating in speculative trading in anticipation of ambitious updates to the carbon market that will likely lead to major cuts in allowance supply. Normal weather conditions are expected in California next week and will, therefore, not play a major role in influencing contract prices.

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Week 38: Muted market reaction to the announcement of the next regulatory meeting to update California’s cap-and-trade program

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