Does the cancellation of the reserve sale indicate that there are no prospects of growth in the market value of California carbon permits?




The California emissions trading scheme regulator communicated that as no covered entities or opt-in entities had indicated an intent to bid at the March 2013 reserve sale and provided a bid guarantee, the Air Resources Board will not be holding the reserve sale scheduled for March 8, 2013.



The idea for Allowance Price Containment Reserve (APCR) consisted in that covered entities may purchase reserve allowances at specified prices during direct quarterly sales. The main purpose was providing covered entities with flexibility through access to additional allowances if prices are high or entities expect prices to be high in the future.

Generally, from the perspective of entities covered be the California scheme (voluntarily associated entities excluding), knowing that the Reserve is available quarterly at an established price provides an alternative to purchasing allowances in the market at prices above the established price. Only when market conditions warrant, will compliance entities purchase the allowances in the Reserve.


APCR has three fixed-price tiers (in 2013: $40, $45, and $50),


Given the above assumptions the simple conclusion flowing generally from the lack of interest to buy allowances from APCR would be that covered entities and opt-in entities apparently estimate that market prices for California emission allowances are currently at moderate levels and they don’t expect them to be high in the future.


However, if market prices are much lower than those set in the tiers of the reserve sale (even the lowest one), as is currently the case, the role of the APCR can be perceived as a rather long-term cost-containment mechanism and mainly of a mental nature.


The next reserve sale is scheduled for June 27, 2013.  A notice for that reserve sale will be posted approximately 30 days prior to the scheduled date. All allowances not sold in March 2013 will be made available at the June 2013 reserve sale.


The outcome of the June 2013 will show whether the lack of interest to participate in the reserve sale has a character of a more lasting tendency or a one-off phenomenon.




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