California carbon allowances trade at $12.30

A total of 800,000 California carbon allowances for delivery in 2013 were transacted as volumes picked up from last week.


Market participants are likely taking advantage of the low price of 2013 vintage California carbon allowances that closed the week at $12.30, most likely in response to a Thomson Reuters market forecast released on Monday.


The Reuters report takes anticipates that emissions from power plants, which are one the largest sources of greenhouse gases, will be significantly lower than they thought.


In a previous analysis, Reuters forecasted that California carbon allowance prices would climb upwards of $60 each by 2020.


However the new report takes the stance that the market will be oversupplied with California carbon allowances in the early years, which will lead to a reduced price.


Reuters also attributes the oversupply to other government initiatives that California has undertaken.


For instance, the state’s Renewable Portfolio Standard set a goal to source 33% of its electricity from clean energy sources by 2020, which would result in less emissions from traditional fossil fuel combustion power plants.


This ambitious goal will not be easy to reach, especially with the recent closure of two nuclear power plants that had generated as much as 8% of the state’s energy.


Another California program will impact the transportation sector and its associated emissions. The Low-Carbon Fuel Standard will require gas to become less carbon-intensive by blending in biofuels.


The Low-Carbon Fuel Standard also faces some major obstacles, including a court ruling that they are violating the Interstate Commerce Act.


Without a clear picture of each sectors actual emissions, it is impossible to know exactly what the demand for California carbon allowances will be.


Last month’s allowance auction resulted in the sale of all vintage 2013 and 2016 allowances for the first time, as regulated companies bought 95% of the 23.3 million offered allowances.


To date, the four California carbon allowance auctions have generated over $1 billion in revenue.