California: Interest shifts to future carbon allowances

17 January 2014 18:09 Source:ICIS

Traders said future and current compliance entities drove the activity for future California carbon allowances (CCAs) on Thursday as participants began to re-evaluate the market.

Participants said the activity moved away from the spot and Dec ‘14 Vintage 2014 and into future allowances, which has been particularly attractive for second compliance entities. More than 1.3m Dec ‘15 Vintage 2016 allowances traded for $12.50/tonne (€9.25/tCO2e) on Thursday, traders said.

“This looks like existing participants who are re-evaluating the market,” a carbon trader said.

A broker added most of the activity was coming from compliance period two entities, such as fuel suppliers. Those entities are getting more active in the market in 2014, and as a result, the liquidity is increasing the market, according to traders.

Power could fuel carbon rise

Power companies created much of the demand on Wednesday as entities began hedging the market out of fear that the hydroelectric power could wane in the West Coast region.

More than 1m allowances changed hands, and a bulk (490,000 allowances) went to the Dec ‘14 Vintage 2014 contracts, according to brokers and traders. Some market participants said power companies could continue to drive the market in the short term.

“Carbon had been inversely related to power prices lately,” said a West Coast power trader, who also trades carbon. “They shouldn’t be lagging. [Carbon] should continue to catch up with power.”

“Power has been relatively quiet so far,” a second carbon trader said. “If they got involved, it could drive prices up.”

Most of the demand from power companies appeared to ease on Thursday. Dan X. McGraw

By Dan X. McGraw