Weekly Review: CCAs plummet as coronavirus concerns continue to drive market

Author: ICIS Editorial

2020/03/16

This analysis was originally been published for ICIS WCI carbon subscribers on March 13, 2020

California Carbon Allowance (CCA)  prices tumbled nearly a dollar within in the past few weeks as the coronavirus spread continues to shake economic stability around the globe.

The front-month Vintage 20 contract dropped $0.50/tCO2e to settle at $17.31/tCO2e during the 6-12 March period, according to the Intercontinental Exchange (ICE).  The Dec ’20 Vintage 2020 contract fell $0.60/tCO2e to settle at $17.71/tCO2e.

Weekly volume rose to 54.08m allowances, a 54.72% increase from the 24.49m that traded or cleared on ICE during the same period in the previous week.  Of the cumulative volume traded, only 20.57m were marked as spread trades while 61.96% were accounted as outright deals.

Stock market volatility has risen in past weeks with investors’ distress over coronavirus concerns.  Jurisdictional declarations of emergency are increasing and in turn shutting down schools, businesses and gatherings across the country.  The economic impact is wide-spread and spilling over into the commodity markets.  The impact of the uncertainty of the coronavirus is far greater than the previous uncertainty of the lawsuit concerning California and Quebec’s linkage agreement.

On the sunnier side of life for cap-and-trade advocates, a federal judge ruled in favor of California, state officials, the California Air Resources Board (CARB) and the Western Climate Initiative Inc. (WCI) on Thursday declaring the cap-and-trade linkage does not violate the treaty clause and the compact clause of the US Constitution.

While the victory may only be half-way completed, it is a win for California in the first two of four complaints by the United States Department of Justice (DOJ).  The final two arguments include the foreign affairs preemption that questions whether California preempted national foreign affair interests and the Foreign Commerce Clause that challenges whether the state interfered with the federal government’s right to regulate foreign trade.

The DOJ can appeal the ruling on the first two decisions but must first gain permission from a District Court following remaining rulings.  At this point, the case could veer a few different directions:  (a) If the judge denies the DOJ’s final points, the DOJ could then appeal the decision after gaining permission from the district court; (b) If the judge rules in favor of the DOJ’s final two complaints, California could appeal the decision and the DOJ could cross-appeal; (c) The judge could also deny summary judgment and the lawsuit could go to trial.

In other cap-and-trade related news, Oregon’s Governor Kate Brown signed an aggressive executive order on Tuesday that sets sector-specific caps on CO2 emissions, doubles the Clean Fuels Program, increases energy efficiency in buildings and accelerates the deployment of electric vehicles (EV) after the failure of passing a cap-and-trade bill due to Republican boycott.

Executive Order 20-04 (EO 20-04) may not result in a cap-and-trade programme, but it is an option that sources from Oregon’s Department of Environmental Quality (DEQ) are considering and could be a step in that direction.  EO 20-04 sets a 45% reduction target from 1990 levels by 2035, and an 80% reduction from 1990 levels by 2050 and tackles multiple greenhouse gas reduction issues within the state.  The DEQ is scheduled to begin discussion on the executive order next week.

Until there is more clarity on containing and treating coronavirus, economic impacts and market volatility are likely to continue.

-Sunny Roe

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