The benchmark CCA contract pushed down consecutively this week, settling at USD 38.65/t on Thursday (30 Nov). This is a 0.97% (USD 0.38) decrease from last Wednesday’s (22 Nov) settlement price of USD 39.03/t. Contrarily, volume traded for the CCA contract pushed up this week, with 20.3 Mt traded on Thursday alone, contributing to a total of 39.2 Mt, a 54% increase week-on-week. The trend in the front-December contract this week is attributed to a quiet regulatory front and the beginning of a shift towards the 2024 benchmark contract as the December contract expiry quickly approaches.

The record-breaking settlement prices for the CCA benchmark contract seen over the past several weeks in response to the meetings being held by California and Quebec regulators have sense cooled down. The California Air Resources Board (ARB) and the Quebec Ministry of the Environment and the Fight Against Climate Change (MELCCFP) held a joint workshop on 16 November where they discussed the implications their allowance reduction scenarios will have on allowance prices going forward. A combined 132 – 407 million allowances are expected to be cut from the two jurisdictions’ future allowance supply in order to achieve a 40%, 48%, or 55% GHG reduction target for 2030. Regulators shared models at the workshop that forecasted allowance prices reaching nearly USD 120/t in 2030 and USD 180/t in 2040 as a result of the proposed scenarios. The workshop exerted significant bullish pressure on CCA prices, which surpassed USD 39.00/t for the first time ever. Since the meeting, no further announcements have been made by regulators and contract prices have begun to come back down, as market participants await further updates.

With a month left in 2023, market entities have begun settling their 2023 positions and disengaging in risk-on behavior. Although anticipating steep allowance cuts in the next several years, market participants seem to have obtained supply to best hedge themselves for the next year. This has contributed to the lack of volatility in the CCA contract this week, particularly after an influx of supply from the Q4 auction.

The Washington Department of Ecology (ECY) released a 

 that outlined an updated structure to its cap-and-invest program that would better align it with the California-Quebec joint program. The legislation aims to facilitate the linkage process with its WCI counterparts after ARB and MELCCFP regulators wrap up their respective program updates. In the draft legislation, changes to increase the auction purchasing limit from 10% to 25% are included to mirror the limit in the California-Quebec program. The document also gets rid of market entities’ 10% holding limit of the total allowance supply for the current year. It also includes guidelines that could subject unspecified electricity imports to compliance obligations in the program and require greater reporting standards for electric power utilities that purchase, sell, import, or exchange electricity in the state. ECY regulators also propose requiring only 50% of offset credits to have direct state benefits (currently 100%) as well as providing offset credits from projects on tribal lands a greater role in the 5% compliance offset limitation for covered entities. The draft legislation also outlines pushing back the reporting deadline for monetary distributions by entities one month from 30 September to 30 November.

On Thursday (30 Nov), ECY regulators also announced 

changes to the structure of its Allowance Price Containment Reserve (APCR)

. Going forward, APCR sales will be offering all allowances at the Tier 1 price (currently USD 51.90/t) instead of splitting the allowances equally between the Tier 1 and 2 prices. ECY regulators have also restructured allowance supply for the APCR sales – increasing 2024 supply by 1 million to 7 million allowances and reducing 2026 supply by 1 million to 700,000 allowances. If Washington’s Q4 auction triggers the Tier 1 price, a reserve sale will be held in February 2024.

The CCA benchmark contract has a bearish outlook for next week. As market participants have begun to establish their end-of-year positions and become more risk-averse, it is unlikely that there will be any speculative trading in the coming week that would push prices up. Any bullish impact on CCA prices driven by upcoming regulatory changes to the California cap-and-trade program are unlikely until the ARB announces further steps to complete the process. Warm temperatures are expected on the West Coast in the coming week but will not play any major role in driving contract prices.

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