This year, North American carbon markets will more than double in value to $2.5 billion, according to market intelligence firm Thomson Reuters Point Carbon.
The growth will be driven by activity in California, whose market will increase over four-fold year-on-year to 186 Mt. Strong demand for California carbon allowances (CCAs), driven by hedging by power suppliers, should push the Californian market as a whole to $2.3bn this year. At state auctions Thomson Reuters Point Carbon predicts CCA prices will increase to around $11 per ton, only slightly above the minimum price of $10.71 per ton, due to a likely over-supply of allowances this year.
The size of the primary market will increase this year as the California Air Resource Board auctions 58 Mt vintage 2013 (V13) allowances and 38 Mt vintage 2016 allowances, up from the 23 Mt and 39 Mt auctions respectively last year.
In contrast, within the secondary CCA market prices are set to be higher. Thomson Reuters Point Carbon estimates that secondary CCAs could average $13/t this year; considerably more than the global average price of around $8 per ton.
While the primary market for CCAs will remain cautious, the secondary market will become dominated by financial players with large compliance obligations and extensive trading experience, who are willing to pay a premium to hold financial positions instead of buying physical allowances. This will lead to higher prices, according to Ashley Lawson, Point Carbon’s senior analyst of the North American market.
California’s linkage to Quebec now awaits only one final hurdle – approval by California governor Jerry Brown. Point Carbon gives it a “90 percent likelihood” that Brown will approve the linkage but expects Quebec will add only marginally to the market volume this year.
Beyond California, North American carbon markets as a whole are growing at a slower pace. Point Carbon values the Regional Greenhouse Gas Initiative market in 2013 at $179 million on 91 million short tons and the Western Climate Initiative offset market at $66 million on 7 Mt. Point Carbon expects more than half the WCI offset market to come from converting early action credits into Air Resource Board Offset Credits.
The value of global carbon markets fell 35 percent to €62 billion ($84 billion) in 2012, according to Point Carbon figures released earlier this month. The fall was largely due to an oversupply of credits, Point Carbon said.
