Benchmark California carbon allowance prices at the over-the-counter market advanced to start the new year.
The December 2020 vintage 2020 contract rolled off the board Dec. 24, 2020, in a bid-and-ask range of $17.39/tonne to $17.42/tonne, up 7 cents from Dec. 2, 2020, assessments.
The December 2021 vintage 2021 contract, which replaces the December 2020 contract as the new benchmark, posted a bid-and-ask range of $18.54/tonne to $18.59/tonne as of Jan. 4, while the January 2021 vintage 2021 contract trailed behind in a bid-and-ask range of $17.68/tonne to $17.71/tonne.
The Western Climate Initiative, or WCI, will hold its next quarterly allowance auction on Feb. 17, offering for sale 54,773,607 current vintage allowances and 8,306,250 future vintage allowances.
At the WCI's Nov. 17, 2020, auction, 100% of the more than 56 million current vintage allowances sold out at $16.93/tonne, or 25 cents above the market floor price of $16.68/tonne. This was the first auction since February 2020 where all current allowances were sold.
Additionally, all of the more than 8.6 million future vintage allowances cleared at $17.35/tonne, according to results released by the California Air Resources Board. This was the second auction in a row where 100% of future allowances sold. The future allowances cannot be used for compliance until 2023.
Market sources said demand was strong in the November 2020 auction for several reasons. The November 2020 allowance sale was the last time entities could buy state-owned allowances before the end of the current compliance period. Although companies have another year to turn in all necessary allowances for the 2018-2020 compliance period, they cannot use vintage 2021 or later allowances for compliance, Katelyn Roedner Sutter from the Environmental Defense Fund wrote in a Nov. 24, 2020, post.
The November 2020 auction was also the last to in which the 2020 market floor price of $16.68/tonne was used. This minimum price increases annually at 5% plus the rate of inflation. The new 2021 price floor of $17.71/tonne will be used beginning at the Feb. 17 auction.
California's cap-and-trade system covers emissions from utility and industrial facilities that emit more than 25,000 tonnes of carbon each year and from entities that have opted into the program. They must purchase either carbon allowances or offsets to account for their annual emissions under the yearly emissions cap.
This California carbon market report is published at the beginning of each month. Prices are published daily on the S&P Global Market Intelligence Environmental Summary page, which can be found on the Market Prices tab of the Market Intelligence platform.