Carbon Emissions 

Market analysis, price forecasts, data and news to help you make better trading decisions

California carbon allowances are expected to stagnate on the secondary market as demand declines for compliance entities during the cooler weather months. Traders and brokers said most compliance entities will limit activity until the next auction.

California’s Air Resources Board (ARB), the cap-and-trade regulator, will auction off nearly 77m Vintage 2015 and 10.4m Vintage 2018 allowances on 21 May. The results will be published at 12:00 Pacific Time on 28 May.

The US Environmental Protection Agency (EPA) is expected to finalise rules for cutting emissions on existing power plants this summer. This could spur a carbon allowance price increase or encourage states to join regional programmes.

In the second quarter, the approval process for the reform of the EU emissions trading system will progress. Market participants expect to have more certainty over the design features of the measure.

The proposed reform introduces a buffer system that would absorb and release carbon allowances, depending on surplus levels, in order to tackle the system’s oversupply and make the supply side more flexible. The reform needs to be approved by both the European Parliament and the Council of the European Union in order to become law. The two bodies are still negotiating and some disagreement remains. The parliament prefers an earlier start and wants the reserve buffer to absorb some of the pre-existing oversupply, while some EU countries are against such features on the grounds that they would increase power prices.

Depending on the start date and the design features, the reform would have a different impact on carbon prices in the long run. Given the high uncertainty, at the moment traders are not taking big positions, which are considered risky.

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Updated to Q2 2015

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