California Carbon Price Surges Amid Policy Updates
California Carbon Allowance Prices Surge Amid Positive Policy Developments
California's carbon allowance prices have continued their upward trajectory, reaching record highs at $38.43, fueled by positive policy developments. Market participants are now eagerly awaiting California's Air Resources Board (CARB) meeting on November 16, where the regulator is expected to reveal price projections based on various market cap scenarios.
This move, a first for CARB, holds significant implications for the state's carbon market, shedding light on potential cap adjustments and acceptable price levels.
The anticipation surrounding this announcement stems from growing expectations that CARB may opt for a more rigorous cap reduction strategy than initially anticipated.
"Two modeling teams, one contracted by CARB and the other an internal team from the government of Québec, will present initial results from independent modeling efforts for allowance prices under different allowance budget scenarios," CARB stated in a recent notice.
The state's proposed cap tightening revolves around achieving a 40% to 55% reduction from 1990 emission levels by 2030, translating to a 115 million to 390 million tonnes reduction in the 2021-2030 cap (equating to an 8-14% annual cap reduction). Adjustments to the Allowance Price Containment Reserve (APCR) levels may also be necessary, as they trigger the release of additional allowances into the market. As California models the potential impacts of these reductions on allowance prices, market data already reflects heightened investor interest in California Carbon Allowances.
As previously discussed in a prior article, beyond the impending announcement from CARB, another noteworthy development has arisen as Washington has reiterated its recommendation to link its carbon market with the California and Quebec joint program. Although it was highlighted earlier that full implementation of this linkage may require a couple of years, the market's positive response to this news remains consistent with previous observations.
Simultaneously, the east coast Regional Greenhouse Gas Initiative (RGGI) market has seen its prices soar to record highs. Traders are speculating that regulators may reduce emissions caps and adjust supply in response to the number of permits in circulation. The December futures contract for RGGI allowances reached an all-time high of $14.79 per short ton on October 30, tantalizingly close to the Cost Containment Reserve's (CCR) trigger price of $14.88 per ton. The CCR currently holds 11.245 million permits that could be released if the next auction clears above the trigger price.
These developments underscore an ongoing trend in carbon markets, wherein the combination of rigorous emission reduction goals and supply adjustments continues to propel prices to unprecedented heights. With investors and policymakers closely monitoring these markets, the forthcoming months hold the potential to provide deeper insights.