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US: CCA weekly volumes hit annual high on compliance buying

11 Apr 2014 17:06:20 | edcm

California carbon allowance (CCAs) volumes traded this week rose to their highest level in 2014 because of increasing demand for future vintages from compliance entities, slightly boosting prices.

CCAs traded or cleared on the InterContinental Exchange (ICE) rose to 5.4m, up from 438,000 last week. The previous high was 3.3m in late January, according to ICE data.

Future vintages sparked the most interest from buyers. In particular, 2.5m December ‘15 Vintage 2016 CCAs changed hands for $12.30/tonne of CO2 equivalent (tCO2e) on Thursday. The price marked a $0.12/tCO2e rise, or 1%, compared with the previous Thursday settlement price calculated by ICE.

The April ‘14 Vintage 2016 contract, which has not traded this year, rose $0.04/tCO2e week on week to settle at $11.70/tCO2e as 950,000 allowances were traded or cleared on ICE. The Dec ‘14 Vintage 2014, one of the most liquid contracts, rose $0.06/tCO2e to settle at $12.00/tCO2e.

Traders told ICIS that compliance entities, mostly from the power sector, were the main buyers. The increased activity on Thursday, which saw 3.8m allowances change hands, was attributed to compliance entities buying vintages for the second compliance period.

“It sounds like people are shifting positions around,” said a trader at a trading house. “It still seems like people come out of the woodwork and do things every now and then. It isn’t solid.”

Market participants said the surge in volume brought renewed optimism about the market, but traders are still concerned about liquidity.

A carbon trader said the CCA market will be driven in the short term by future compliance entities and buyers who are preparing for the first compliance deadline on 1 November. By that date, compliance entities will have to surrender 30% of their 2013 emissions.

The Air Resources Board, the governing body of the state’s cap-and-trade programme, will hold its second auction on 16 May. Market participants will be able to purchase 16.9m current and 9.3m future vintages. Dan X. McGraw

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