Stagnant prices forecasted for California allowances in 2014

02 January 2014 14:01 Source:ICIS

Californian carbon prices are set to remain stable this year even as companies approach the first partial compliance period, traders told ICIS.

More than 400 compliance entities will be required to permanently surrender allowances matching 30% of their 2013 emissions on 1 November 2014.

This could boost demand in the months running up to November, but these buyers are mainly expected to be smaller compliance entities that are unlikely to absorb much of the current oversupply of California carbon allowances (CCAs).

Most large compliance entities have obtained enough allowances through their free allocation or in Air Resource Board (ARB) auctions, traders said.

“Some smaller entities might be scrambling, but it won’t cause a huge price spike,” a source at a trading house said.

“If people start to hedge next year, you could see prices come up off the floor,” a trader from a compliance entity said. “But at the same time, a lot of those allowances are already hedged by the price in the auction.”

There could be some demand from sectors entering the cap and trade system next year. Climate consultant Emilie Mazzacurati said in an online forecast that oil companies could buy in larger volumes in 2014 as they prepare for the start of second compliance period in 2015.

Allowances sub-$12/tonne

The CCA Dec ‘13 contract traded at $11.85/tonne (€8.53/tCO2e) before expiring at the end of December. Allowances prices have stayed below $12/tonne for several months as an overallocation of allowances weighs on prices.

The ARB floor price will rise to $11.34/tonne in the New Year, but traders said they do not expect the $0.63/tonne rise to have any impact on the price of allowances in the secondary market.

“Unless something fundamentally changes, prices likely won’t rise that much next year,” one trader said. “The market is just so over allocated right now.” Dan X. McGraw

By Dan X. McGraw