US: California carbon bearish ahead of auction

13 February 2014 21:45 Source:ICIS

California carbon allowances (CCAs) prices on the secondary market declined this week amid weak demand and thin liquidity ahead of the next Air Resources Board (ARB) auction on 19 February.

The Dec ‘14 Vintage 2014 contract settlement price on the InterContinental Exchange (ICE) was $12.15 tonne of CO2 equivalent (tCO2e) on Tuesday, the latest day it dealt, a $0.15/tCO2e decline from 7 February. The Dec ‘14 Vintage 2013 contract changed hands at $12.25/tCO2e on Wednesday, a $0.05/tCO2e decline from 7 February, according to ICE data.

Activity on the market is subdue, as only around 2.4m CCAs have transacted in February so far on ICE, a significant dip from the 19.38m traded in January, according to data from the exchange.

Traders attributed the steep decline in volumes to the upcoming auction on 19 February and increased interest in other environmental markets, such as the New Jersey Renewable Energy Credit.

“Until the ARB posts auction results, it should be pretty quiet in California,” said a source at an environmental brokerage firm.

Participants said the upcoming auction could bring additional liquidity and spur interest from compliance entities and speculators. The ARB, the governing body of the state’s cap-and-trade programme, will be auctioning off 19.54 Vintage 2014 and 9.26m Vintage 2017 contracts.

Traders polled by ICIS said the auction should settle in the mid-to-high $11.00/tCO2e range for the Vintage 2014 contract. The floor price is $11.34/tCO2e for both contracts. Dan X. McGraw

By Dan X. McGraw