Quebec’s first auction sells at floor price

09 December 2013 17:56 Source:ICIS
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Quebec sold less than 2m total allowances for its C$10.75/tonne ($10.10/tonne, or €7.37/tCO2e) floor price as fewer than 20 companies took part in its inaugural auction, according to a Quebec release.

Quebec sold 1.7m vintage 2016 allowances and 1m vintage 2013 allowances at the floor price, closely matching the expectations of traders going into the auction. Due to the small size and unfamiliarity, market participants expected the auction would settle near the floor price.

The results largely mirrors those from California’s first auction in November 2012. In that auction, legal uncertainty tempered interest in allowances and caused prices to clear 9 cents above the $10 floor price for 2012.

“I’m not surprised by the low price, but the low level of allowances sold is a bit of a surprise,” a Quebec trader said. “A lot of the important players didn’t bid in the auction.”

Participants

Quebec’s auction attracted 19 bidders, who made about one bid for every three allowances on offer. Those companies emitted more than 6.2m tonnes of greenhouse gases in 2012, and most of the companies received free allowances in May, according to government data.

Quebec did not disclose how many of those companies are compliance entities, but according to government documents, two participants ­– Shell Energy North America and Denis Dionne – did not appear to have an obligation in 2013.

Shell and Denis Dionne, who teaches climate change at the University of Sherbrooke, did register for the compliance instrument tracking system service (CITSS). Some traders noted entities, such as Shell, may have seen this auction as an opportunity to buy allowances for a lower price for future obligations in Canada or in California.

A second trader said he expected to see more compliance entities in the auction, but those entities could have taken a more conservative approach due to the low volume of allowances offered. A third source said companies may have been solidifying their positions ahead of future obligations, or in case the extra supply caused prices to decline in California.

California linkage

Vintage 2016 California allowances traded at $12.10/tonne last week, traders said.

Valero and Transcanada, who take part in California allowance auctions, were among the compliance entities who did bid in the Quebec auction.

Quebec’s market currently encompasses more than 70 facilities owned by about 40 companies in the industrial and electricity sectors. Those companies emit more than 25,000 metric tonnes of greenhouse gases per year.

Some traders and brokers said they would not participate until Quebec and California hold joint auctions in 2014. Quebec will link with California’s emissions trading system (ETS) on 1 January, but the two entities will not initially hold joint auctions, officials said.

Once the link is live, Quebec and California companies will be able to buy allowances from either auction. Quebec emitters are expected to be net buyers in the California market, and market participants said those companies could soak up some of the oversupply in California’s ETS.

Quebec has not posted the date of its next auction. California’s next auction is scheduled for 19 February. Dan X McGraw

By Dan X. McGraw