California Carbon Price Forecast Plunges
Californiaâ€™s carbon emissions will be lower than analysts initially expected, remaining below the allowance cap until at least 2017 with offsets making the market oversupplied through 2019, according to analysis by Thomson Reuters Point Carbon.
Based on a revised emissions model, Thomson Reuters Point Carbon now estimates that emissions covered under Californiaâ€™s cap-and-trade system will decline to 339 metric tons in 2020, 4 percent below 2013 levels.
Accordingly, long-term carbon allowance prices will drop 66 percent from analystsâ€™ previous expectations, with the Western Climate Initiative (WCI) fair price assessment for allowances remaining at the floor price, $11 per metric ton in 2013 and $15 per metric ton in 2020. The average allowance price is forecast to be $13 per metric ton through this period.
Beginning in 2014 the California cap-and-trade program will link with Quebecâ€™s carbon market so that allowances and offsets issued in one jurisdiction may be used for compliance in the other. This is why this allowance price forecast is for the combined WCI market, which covers California and the Canadian provinces of Ontario, Quebec, British Columbia and Manitoba.
Ashley Lawson, senior analyst at Thomson Reuters Point Carbon, says the stateâ€™s emissions reductions policies such as its renewable portfolio standard, coupled with a slow economic recovery, have dramatically cut California emissions. The most recent emissions forecast is 9 percent lower than the groupâ€™s previous forecast, Lawson says.
Covered entities in California â€” facilities, power importers and fuel suppliers â€” emitted about 353 metric tons in 2011, already 25 metric tons below the 2015 cap, Thomson Reuters Point Carbon says. Greenhouse gas emissions from covered California-based facilities, which have had to report since 2008, declined 15 percent from 2008 to 2011, the last year for which data is available.
Lawson predicts the 2013 allowance prices will fall to near this yearâ€™s floor price of $10.71 per metric ton. California Carbon Allowances currently trade on the Intercontinental Exchange for around $13 per metric ton. Lawson says the downward revision could mean trouble for the marketâ€™s liquidity.
A recent decline in transportation fuel emissions has also contributed to the reduced emissions forecast, falling from a peak of 172 metric tons in 2007 to a low of 156 metric tons in 2010 as high oil prices and the recession-reduced demand.
Lawson says while the emissions will likely recover through 2014, after that policies like Californiaâ€™s Low Carbon Fuel Standard and the federal fuel efficiency standards will drive emissions to their lowest levels in a decade.
California raised $275.5 million selling emissions permits in its fourth auction last month, with the stateâ€™s largest emitters paying a lower than expected $12.22 per metric ton for the right to release carbon this year.
All 13.8 million available carbon allowances for use this year sold, the California Air Resources Board says. The carbon price in the Aug. 16 auction was about 12.7 percent lower than the previous sale in May.
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