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US: Sluggish start for California carbon market

10 Jan 2014 15:27:39 | edcm

California carbon allowances (CCAs) are seeing light trading through the first week of the New Year, but traders are expecting demand to rise for future vintages to start the second compliance year.

Market participants said the sluggish first days should give way to increased demand for CCAs. A broker said fuel suppliers are driving demand for future Vintage 2016 allowances as the benchmark Dec ‘14 contract saw only modest interest from other market players.

“We are seeing more compliance period two entities participating,” the broker said. “It will get busier, but it will be incremental in 2014.”

The benchmark Dec ‘14 contract is trading for $12.00/tonne (€8.76/tCO2e), and the Vintage 2016 contract is selling for $12.30/tonne, according to traders. A second compliance entity scooped up most of the 250 thousand Dec ‘15 Vintage 2016 allowances sold earlier this week, according to traders.

Participants said the sluggish start to 2014 is likely due to the New Year’s holiday, but others said the market could be slow through the first month as companies re-establish their positions.

“Everyone’s books are really clean right now,” a carbon consultant said. “People are just waiting before taking a new position.”

Traders polled by ICIS believe the CCA price will remain fairly flat through the first half of the year before seeing a slight increase in demand around the first compliance period. The increase in demand could cause the prices to rise slightly in the fall. Dan X. McGraw

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