CCAs soar 14 pct as new buyer pushes prices

California carbon allowances (CCAs) for delivery in 2013 hit their highest price this year, gaining $1.85/t from the previous week to close at $15.50/t on Thursday, on the back of new buying, market sources said.

A total of 245,000 CCAs changed hands this week on the IntercontinentalExchange (ICE), making it the busiest week for allowance trading so far this year.

Brokers said the entrance of a new buyer into the market, which was described as a firm with a small compliance obligation that was also interested in speculating on the market, helped kick off the trading on Monday.

Participants also staked out positions early in the week ahead of the expected approval of carbon market rules for the state’s three big investor-owned utilities by the California Public Utilities Commission (PUC).

On Thursday the PUC approved a revised set of market rules for the companies, which gave the "big three" the green light to buy and sell allowances and offsets.

That vote kept the rally going on Thursday, when 63 percent of the week's CCA deals were cleared on ICE.

The PUC final regulations give the utilities more flexibility to purchase compliance instruments than had been set out in an earlier draft of the rules, which was released in February.

The rules allow PG&E, SCE and SDG&E to enter into offset forward contracts with credit suppliers and to purchase allowances directly from exchanges.

“People are pretty excited about that decision,” one broker said Thursday about the vote on the revised rules.

Despite the uptick in CCA volumes, carbon offset credits did not trade this week.

Credits derived from the destruction of ozone depleting substances (ODS) were bid at $7.50/t with an asking price of $8.50/t, broker said.

A trader said the surge in activity was part of a larger belief that the market would start on time.

“People are beginning to realize that this program is actually going to get off the ground at some point,” the trader said.

“Buying around $15 with a $10 auction floor is a pretty good trade. If (the California Air Resources Board) went ahead and finished all the program details sooner rather than later, I think we would see a material uptick in liquidity,” he said.


(Source: Thompson Reuters)