The Air Resource Board (ARB) does not believe that California cap-and-trade scheme is oversupplied and thus has no plans tweak the program, it told ICIS on Thursday.
The ARB, the governing body for the state’s carbon program, said there is insufficient data or evidence to show the market is currently over allocated.
“We don’t think that (oversupply) is present right now,” an ARB official told ICIS. “There is no mechanism being addressed right now to deal with that issue.”
Any future changes would only address long-term issues to the cap-and-trade programme, ARB officials added, and the board would look at numerous variables – such as behaviour of the market, growth of the economy and emissions data – before making any tweaks.
Market participants, however, believe the market is oversupplied through at least the second compliance period, and as a result, many traders and brokers believe CCAs could trade within a dollar of the floor price through to at least 2017.
That bearish sentiment is causing low liquidity and relatively flat prices on the secondary market, and compliance entities are not aggressively purchasing volumes but rather taking a more conservative approach, according to traders.
“As it translates to reality in terms of volume and prices, it’s a different story. The market is way oversupplied,” said a broker at a brokerage firm.
Several other carbon programmes have had to make changes to their systems in recent months. In the European Emissions Trading System, a share of the scheduled auction supply will be postponed under a measure known as back-loading. The scheme is oversupplied by 2bn allowances. The Regional Greenhouse Gas Initiative, the US’s first cap-and-trade programme, reduced its cap by 45% to alter market fundamentals. Dan X. McGraw