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California carbon traders face wait for auction changes

29 Nov 2013 11:34:12 | edcm

The California Air Resources Board (ARB) is likely to hold off changing the way it auctions emissions allowances until at least 2015, according to a member of the Carbon Market Compliance Association (CMCA), an industry trade group.

Traders and brokers speaking to ICIS are pushing for more frequent auctions and a two-sided format that would allow entities to buy and sell carbon allowances. They believe those changes could boost the low liquidity for California carbon allowances (CCAs).

“A lot of the market activity revolves around the auctions,” a carbon consultant said. “You wouldn’t have that supply shock if you had more frequent auctions.”

The ARB currently holds auctions every quarter.

The CMCA member said the ARB is unliking to tweak its existing auction process until after it holds its first joint auction with the emissions trading system in Quebec, which is supposed to take place in 2014.

An ARB spokesman confirmed the agency does not currently have plans to change the auction system or frequency.

The Emissions Market Assessment Committee (EMAC), which is a group of economic professors who advise the ARB, is also calling for the ARB to adopt two-sided auctions and a more frequent interval.

The professors said the changes would “significantly improve the credibility of the allowances price information available”.

If the ARB were to make changes, the board would have to streamline its current two-month process for auctions, which includes entities applying for the auction, making a bid deposit and submitting a final bid for allowances.

But a carbon analyst said the two tweaks would be difficult to implement by the ARB due to the necessary administrative changes. The agency could, however, address the liquidity issue by making tweaks to other areas of the regulation, the analyst said.

“They could increase liquidity by changing the holding limits and treatment of the compliance account,” he said.

The ARB currently allows covered entities to hold a maximum of 5.94m allowances, which would drop to 5.86m in 2014, as long as those allowances are held in an entities’ compliance account.

Under the regulation, companies are also restricted from selling allowances from compliance accounts, which potentially could leave some unused allowances stranded.

The EMAC suggests the agency loosen those rules to give companies the ability to sell extra allowances from its compliance account to another entities’ account.

An ARB spokesman said the board has no plans to make changes to the holding limits or permit sales from the compliance account.

Carbon brokers and traders are concerned about the lack of liquidity in the California market through the first year. Participants said liquidity is one reason prices have stayed below $12.00/tonne (€8.88/tCO2e) since the beginning of August.

Prices hovered at $11.90/tonne for vintage 2013 allowances on Tuesday. Dan X. McGraw

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