Climate Solutions Group

13th California Quebec Cap and Trade Auction Sells Out

refinery emissions


Nov 2017


Quebec and California of the Western Climate Initiative held the thirteenth joint cap and trade auction last week on November 14th. The auction completely sold out of current 2017 and 2020 vintage emission allowances.

Continuing Market Stability

The results of the past few cap and trade auctions demonstrate that the stability of the WCI carbon market is steadily growing. Three auctions in a row have sold out of 2017 current vintage emission allowances and the last two auctions have sold out of 2020 future vintages. The last three Ontario auctions have sold out as well.

Regulated emitters and other market participants are showing confidence in the longevity of the cap and trade system. This is positive for Ontario, which will join California and Quebec, with the linkage agreement signed this past September. The joint market will increase emitter’s access to low cost emission reductions, and create additional incentive for carbon offset project developers.

Cap and Trade Results

79,548,286 current vintage allowances were sold, including 15,909,657 unsold allowances from 2016. This is a larger supply than the last auction where 63,887,833 current 2017 vintage were sold. The increased supply was met with the considerable demand which increased prices.

The auction reserve price for current vintage allowances was $13.57 USD. The clearing price was $15.06 USD, notably $1.49 above the floor price and $0.31 above the clearing price of the last auction.

All 9,723,500 future allowances sold at a price of $14.76 USD, $1.19 above the auction reserve price. The fact that future allowances sold out indicates that market participants are confident in the future of cap and trade program.

Emitters may be banking these allowances for use in the future when prices are expected to be higher and emission caps are expected to be tighter. In the meantime, some emitters may choose to invest in projects to reduce emissions now, so that they can sell surplus allowances in the future when carbon prices are higher. These types of financial incentives make cap and trade systems effective.

How the Emissions Decline in California will affect the Carbon Market

Before the cap and trade auction, news came out that emissions from regulated California emitters declined at a rate faster than previous years. The emissions reductions largely stemmed from utilities importing smaller amounts of electricity from coal fired plants from other US states. This points to the effectiveness of cap and trade, but will also affect the market for emission allowances.

Overall, California emissions fell by 4.7% – more than the cap decline rate of 3.1%. This means there will be fewer requirements for emission allowances and offsets in 2016. Market analysts predict that 60.7 million allowances will be carried over into the 2017 compliance year[1], thereby increasing the supply in the market. This may have an downward pressure on prices.

The performance of the past few auctions have been positive. These positive results are likely to continue in Ontario’s final solo auction on November 29th before it joins the WCI in 2018.


[1] California Carbon: California emissions decline faster than cap in 2016

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