Auction Results: 13th Joint Auction clears within expectations, Sec Market to gently rise over the year

November 21, 2017 by Ronjoy Bezbarua

(Edited on 29 November, 2017 on account of further notes being added with regards to the number of participants)

Summary: California and Quebec thirteenth joint auction has cleared for the third consecutive time at a record high settlement price of USD 15.06 for the Current Auction and USD14.76 for the Advance. Both the auctions were oversubscribed with bid-to-cover ratios of 1.37 and 1.27, respectively, with a record 103 qualified bidders (74 from California and 29 from Quebec, as per our initial estimate).

Furthermore,  not only did the auctions clear over the current floor price of USD13.57, but well over next year’s estimated floor near USD14.52. A strong performance in the Advance Auction highlights a continued interest in securing future compliance obligations following the extension of the program to 2030.

Vintage Year Number of Allowances
2016 – 15,909,657
2017 – 63,638,629
Total Current Auction Budget: 79,548,286

No. of Qualified bidders: 102**
California Qualified Bidders: 74
Quebec Qualified Bidders: 29
Revenue: Total – USD 1,341,516,047
State (USD 1,045,935,234); Utility consignment (USD 295,580,813)

*All emission totals and percentages used in this report are use the latest available emissions data: 2015 for Californian entities, and 2014 for Quebec entities.

**PG&E participated as two qualified bidders

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Short-term Market Impact

The 79,548,286 allowances on offer were purchased by market participants at last week’s Current Auction. Carbon allowances have been in healthy demand since February’s inauspicious auction results. Policy certainty brought about by a positive court ruling of CCC vs ARB as well as the passage of the extension bill, AB398, has further strengthened the demand for California Carbon Allowances (CCAs) especially since June.

With increased confidence over the market’s longevity, CCA prices observed on the secondary market saw a general uptick since the last auction which cleared at USD 14.75. On the day of the auction, the current front contract (Nov17) was valued at USD 15.15, appreciating by USD 0.08 prior to today’s results.

A clearing price at the current auction of USD15.06 should not come as a surprise to the secondary market which has traded at an average of USD15.23 since the last auction. In previous editions of the Weekly Outlook, CCI analysts had predicted this auction to clear around USD15 given the price levels on the V17 front, the rate of OI creation on the post-auction delivery, and the early positioning into 2018 seen over the last few weeks.

Over the remaining compliance year, CCA prices should ascend steadily and likely find support around USD15.30 till the next auction in February. With over 89.2 millions added to the spot volume, liquidity is set to increase in the short run with interest largely increasing on the Dec18 delivery and, to a lesser degree, on other post-auction deliveries – Mar18, Jun18, and Sep18.

The Advanced Auction also showed strong results with all 9,723,500 V2020 allowances on offer clearing at a bid-to-cover ratio of 1.27. Given the more certain direction of cap-and-trade after the implementation of AB 398 and the impending linkage with Ontario, the interest in future allowances reflects the eagerness of traders to start securing positions for future compliance obligations. The V2020’s on offer, settled at USD 14.76, USD 1.19 above this year’s Auction Reserve Price yet around USD 1.86 below 2020’s expected floor.

Cumulative surplus reached the level of 66.48 million due to this fully subscribed auction which offered 15.66 million additional allowance compared to the previous auction.

Soon-to-be partners, Ontario, will hold their fourth auction on November 29, 2017. Trading activities have remained fairly inactive across the border over the past few months, leaving aside a trade of 3 million tons  on the Feb18 delivery taking place on the 3rd of November and 50,000 tons taking place on the 7th of November on the Dec17 delivery.


Analyst Contact
Chandan Kumar (chandan@californiacarbon.info)
Ronjoy Bezbarua (ronjoy.bezbarua@californiacarbon.info)
Abhilasha Fullonton (abhilasha.fullonton@californiacarbon.info)

CC.info will be releasing a deeper statistical breakdown of trends and observations from the latest joint auction in our After-Auction Review. For more information about CaliforniaCarbon.info’s comprehensive Auction Data Suites, please contact contact@californiacarbon.info.

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