The CCA benchmark contract pushed up for most of this week, once again breaching USD 39.00/t. The front-December contract peaked on Tuesday (5 Dec), settling at USD 39.04/t before coming back down in the latter half of the week – settling at USD 38.95/t on Thursday (7 Dec). Like prices, the volume traded for the CCA contract came down this week – totaling 22.4 Mt, a 43% decrease week-on-week. The trend in the benchmark contract this week is reflective of market entities rolling into their 2024 positions as the front-December contract shortly goes into expiry.

With only a few weeks left in 2023, market participants have begun rolling their positions to the 2024 contract and hedging themselves in anticipation of heightened allowance prices in the coming year. The recent allowance reduction scenarios outlined in recent meetings between California and Quebec regulators have exerted significant bullish pressure on market entities. The 

entail a combined cut of 132-407 million allowances from 2025-2030 and could push prices up to USD 120/t by 2030. In response to the expected cut in supply, compliance entities have increased their long positions in the market, which has been driving the benchmark contract up in recent weeks.

On 1 December, California and Quebec regulators announced the 

 of USD 24.04/t. This is a USD 1.83 (8%) increase from the 2023 Reserve Price of USD 22.21/t. The Auction Reserve Price for any given year is calculated by multiplying the previous year’s price by a quantity equaling 5% and by the inflation rate found by using the Cost Price Index (CPI). Regulators will then choose whichever jurisdiction’s result is the highest. Washington also announced its Auction Reserve Price for next year at USD 24.02/t – just below California and Quebec’s and USD 1.81 (8%) up from this year’s USD 22.21/t floor.

On Wednesday (6 December), the Washington Department of Ecology conducted its 

. Unlike the Q1 and Q3 auctions, allowances were offered in both Advanced and Current Auctions. There were 7.1 million V23 allowances up for grabs in the Current Auction and 2.4 million V26 allowances offered in the Advanced Auction. Allowances on the secondary market have been trading at levels above the Tier 1 price of USD 51.90/t and will likely influence an auction settlement price above USD 52.00/t. If the auction settles above the Tier 1 price, there will be an Allowance Price Containment Reserve (APCR) sale in February with 1.9 million allowances available at the Tier 1 price.

The CCA benchmark contract will continue trading at levels within a tight margin of USD 39.00/t in the coming week. Contract prices will continue to be supported as market participants continue rolling into their 2024 positions. It is unlikely that the front-December contract will see significant volatility next week as many traders will be more risk-averse as they settle their end-of-year balances. Furthermore, without any further updates from California regulators regarding updates to the cap-and-trade program, there will not be any significant market drivers. Normal weather conditions are expected on the West Coast next week and will not play any role in driving contract prices.

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Week 49: CCA contract holds steady heading into the last few weeks of 2023

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