Climate Solutions Group

Ontario’s Third Cap and Trade Auction Completely Sells Out

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Sep 2017

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Ontario’s third Cap and Trade Auction, held on September 6th, completely sold out for both current (2017) vintage and future (2020) vintage emission allowances. The previous two auctions sold out of current vintage allowances as well so Ontario’s cap and trade auctions are off to a healthy start.

Steady uptake of Future Vintage Allowance Purchases

The previous two auctions did not sell out of future vintage allowances. In the second auction, 53.7% of future vintage allowances sold, which is more than double the amount that sold in the first auction (26%). The steady uptake of future vintage allowance purchases shows that Ontario emitters are increasingly active. This may be a result of the increased regulatory certainty of the California cap and trade program, as well as the strong demand for future vintage allowances in the previous California-Quebec joint auction.

Results Breakdown

Auction Reserve Price

  • The third auction’s Auction Reserve Price was $16.79, lower than the first and second Auction Reserve Price of $18.07 and $18.30 respectively. The reserve price was lower because of the deflated exchange rate and a floor price tied to the WCI.

Settlement Price

  • Despite a lower Auction Reserve Price, the Settlement price remained comparable to previous auctions, landing at $18.56 compared to $18.08 and $18.72 of the first and second auctions respectively.
  • The Settlement Price was $1.77 above the floor price, which is a record for the WCI and Ontario.

Bid-to-Cover Ratio

  • The Bid-to-Cover ratio is the total qualified bids divided by total allowances available.
  • The third auction was oversubscribed for both current and future allowances which denotes a Bid-to-Cover ratio of above 1
  • For current vintage allowances the Bid-to-Cover ratio for third auction was 1.19 compared to the 1.16 and 1.22 of the first and second auctions respectively.
  • For future vintage allowances, the Bid-to-Cover ratio for the third auction was 1.53, showing much stronger demand than the 0.26 and 0.54 of the first and second auctions respectively.

Cap and Trade Auction Proceeds

The proceeds, estimated at$525,694,672, adds to the $976,213,345 raised in the first two auctions. These proceeds will be invested in Ontario to help businesses and families reduce GHG emissions through various initiatives outlined in Ontario’s Climate Change Action Plan. So far the government has invested the proceeds in programs including rebates for homes and businesses, building retrofits, support for municipal climate change action programs, and commercializing low-carbon technologies.

Future Ontario Auctions

Ontario’s next auction is schedule for November 29, 2017. Based on the Ontario Government’s revenue expectations, the trend of over-subscription should continue. Additionally, as regulated emitters attempt to fill their annual compliance goals within Ontario’s tight cap, strong demand should also drive a strong final 2017 auction for both current and future vintages.

Conclusion

The last three auctions have demonstrated the robustness of the Ontario Cap and Trade Program. The trend of oversubscription of current allowances show that regulated entities are on board with the program. The growth in demand for future vintage allowances specifically shows an increasing demand for emission allowance volume.

This year’s auctions should demonstrate the regulatory success of cap-and-trade to stakeholders as Ontario finalizes its linkage with California and Quebec in the Western Climate Initiative (WCI).

If you have any questions or want to learn more about Ontario’s cap and trade program, kindly contact me at nvanbeilen@tcsg.socialworth.ca 

 

Photo Courtesy of Max Pixel

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