California could face steep carbon prices: Barclays
Published: 02 Feb 2011 17:23 CET Last updated: 02 Feb 2011 19:25 CET
Emitters may pay $70/t to comply with California GHG limits in 2018-2020, Barclays projects.
In a research note released today, the bank's London-based analysts assessed the California cap-and-trade market, which is set to begin trading in January 2012.
In 2016, the market should cover 400 million tonnes of carbon dioxide equivalent – a fifth of the European carbon market that year.
The economy-wide cap-and-trade scheme is one of several measures aimed at lowering greenhouse gas emissions to 1990 levels by 2020 - enshrined in the state’s AB 32 law.
The achievement of other complementary state policies, such as an aggressive renewable energy standard (RES), a low-carbon fuel standard for transport fuels, and vehicle emission standards will have a significant impact on carbon prices, the analysts said.
In addition, the availability of offsets emitters can use in the cap-and-trade programme will have a notable effect on carbon prices.
In the programme’s first compliance period, from 2012-2014, prices will be modest as the market will have an adequate supply of allowances (CCAs) and offsets (CRTs), according to the note.
Phasing in
In this initial phase, only industry, power - including imports - and oil refiners will be covered. Emitters are likely to pay $12 when trading begins in 2012 and an average of $16 over the entire compliance period, the analysts predict.
In early pre-compliance trading over-the-counter, traders have said the 2012 delivery contract was bid at $14.00, with an asking price of $14.50. Prices have been rising steadily since December when regulators finalised the cap-and-trade rules.
But as demand for CCAs and CRTs increases with the entry of suppliers of oil products, natural gas and LPG into the market, the analysts said prices will average $40 in the 2015-2017 period.
Forward hedging of liabilities for the third compliance phase (2018-2020) will pressure prices in the second period and “use up any slack in the system,” according to the research note.
Given the shortness of the market starting in the second compliance phase, allowances from a special “price control reserve” will likely be brought to market in 2018, when prices are expected to hit the reserve trigger of around $80.
Roughly 124 million allowances will be held in the reserve throughout the three compliance periods, the bank said.
This means that prices would range around the average reserve price of that period of around $90, meaning prices would average $73 from 2018-2020.
In 2016, the market should cover 400 million tonnes of carbon dioxide equivalent – a fifth of the European carbon market that year.
The economy-wide cap-and-trade scheme is one of several measures aimed at lowering greenhouse gas emissions to 1990 levels by 2020 - enshrined in the state’s AB 32 law.
The achievement of other complementary state policies, such as an aggressive renewable energy standard (RES), a low-carbon fuel standard for transport fuels, and vehicle emission standards will have a significant impact on carbon prices, the analysts said.
In addition, the availability of offsets emitters can use in the cap-and-trade programme will have a notable effect on carbon prices.
In the programme’s first compliance period, from 2012-2014, prices will be modest as the market will have an adequate supply of allowances (CCAs) and offsets (CRTs), according to the note.
Phasing in
In this initial phase, only industry, power - including imports - and oil refiners will be covered. Emitters are likely to pay $12 when trading begins in 2012 and an average of $16 over the entire compliance period, the analysts predict.
In early pre-compliance trading over-the-counter, traders have said the 2012 delivery contract was bid at $14.00, with an asking price of $14.50. Prices have been rising steadily since December when regulators finalised the cap-and-trade rules.
But as demand for CCAs and CRTs increases with the entry of suppliers of oil products, natural gas and LPG into the market, the analysts said prices will average $40 in the 2015-2017 period.
Forward hedging of liabilities for the third compliance phase (2018-2020) will pressure prices in the second period and “use up any slack in the system,” according to the research note.
Given the shortness of the market starting in the second compliance phase, allowances from a special “price control reserve” will likely be brought to market in 2018, when prices are expected to hit the reserve trigger of around $80.
Roughly 124 million allowances will be held in the reserve throughout the three compliance periods, the bank said.
This means that prices would range around the average reserve price of that period of around $90, meaning prices would average $73 from 2018-2020.
To view the full story by Valerie Volcovici – vv@pointcarbon.com visit pointcarbon.com
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