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To cap US emissions, California regulators force industrial firms to obtain “permits to pollute”, called carbon allowances or CCAs.
As of July 2021, the price of California carbon allowances (CCAs) was $19.30 per tonne of CO2.1 In light of the clean energy transition, tightening emissions regulation may provide a positive catalyst for the performance of the carbon market. To control price, California also includes an Auction Reserve Price which started at $10 per tonne in 2012 and increases 5% annually plus inflation, providing a measure of downside protection.2
CCAs are an asset that produce a positive environmental impact and can be re-sold; Unlike offsets, which have no resale value once used and (mostly) do not reduce emissions.
investing in carbon instruments.
Platform’s products provide direct exposure to the
value of physical carbon emission allowance[2]
Suitable for qualified institutional and individual
investors seeking exposure to carbon allowances
Removes the complex and costly set-up requirements needed to access the market directly and take delivery of physical carbon allowances
+ Simplifies access to WCI carbon market
+ Issued securities mirror the liquidity of carbon allowances
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Want to know more about the carbon markets or what we do? Check out our most frequently asked questions. If you still can’t find what you’re looking for just get in contact with us at us@sparkchange.io.
Both carbon allowances and offsets have merits and important roles to play to make the world a better place. However, offset schemes are voluntary and uncapped, and therefore do not necessarily create a reduction in emissions. In addition, Allowance markets are full regulated and allowances themselves are fungible, whereas offset schemes vary widely in quality and impact.
What are the key price drivers of CCAs?
Key price drivers are the supply and demand for carbon allowances as well as a pre-defined auction floor price.
Emissions are the main driver of demand, with the transport sector accounting for nearly half of California’s annual emissions. Mid-term price developments are often closely linked to economic development. The implementation of carbon reduction policies, such as renewable portfolio standards and incentive programs to support the move to Zero Emission Vehicles defined demand for allowances in the long-term.
The supply of allowances is set in line with long-term emission reduction goals in the form of an annual cap. The underlying legislation is proposed by the CARB and put into law through the Californian legislative process. Over the last years, California has continuously increased its climate change ambitions.
The auction floor price for CCAs ($17.71 in 2021 (Source: CARB) provides a soft lower boundary for CCA prices, it’s yearly increase has been driving CCA prices upwards since the inception of the program.
What is the Californian cap-and trade program’s Auction Floor Price? How does it work?
The annual auction reserve price for the Californian cap-and trade program is set by the regulator to provide a strong, dependable price signal to the market and manage supply in phases of lower demand. It is the minimum price set at each quarterly auction: if bidding volume at or above this price stays below offered volume, the auction does not sell out, reducing supply to the market.
The floor price was set at $10 in 2012 and increases by 5% + inflation annually. In 2021, the floor price is $17.71. (Source: CARB)
Californian Carbon Allowance market ripe for impact investors
With investors helping to set record prices, the California carbon allowance market has burst…
SparkChange is a provider of specialist carbon investment products and data, enabling investors to achieve both positive environmental impact and financial returns. The company was established by experts in environmental products and capital markets technologies to set a new standard in carbon investing. Our mission is to revolutionize access to carbon. More investors with access means a bigger impact on the environment. That doesn’t just change a world of investing. It can change the future of our planet.
SparkChange is not an issuer of financial products. This website is for professional clients only. Forecasts are not a reliable indicator of future performance.