The Californian CO2 market is getting new neighbors


Oregon and Washington state are set to enter the west coast carbon market soon after a year of financial players dominating the headlines as they helped drive allowance prices to all-time highs.

New net-zero commitments from companies in the run-up to the Cop 26 climate conference in Glasgow, Scotland, along with soaring EU ETS prices this year prompted financial players to consider the Western Climate Initiative (WCI) market, particularly California which has the largest carbon footprint liquidity scheme in the US.

In California, participants largely expect the market to remain bullish over the long term after interest from speculative investors helped propel prices to record highs in the second half of the year.

California Carbon Allowance (CCA) prices rose steadily for much of the year. Argus rated CCAs for December 2021 delivery at $ 18.55 / t on Jan 4th. They exceeded the $ 20 / t mark in June, the $ 30 / t mark in October and reached a high of $ 35 / t on November 15. The price has since declined, but was still below $ 30 / t before the holidays.

However, the market could experience some short-term volatility in the New Year as the Omicron variant spreads. Closures could have an impact on emissions and reduce the demand for allowances.

Oregon recently launched its own version of a cap-and-trade program, a development that could attract more carbon offsetting developers to get into the area. The country’s climate protection program is scheduled to start next year and is intended to limit CO2 emissions from the use of natural gas and other fuels, including gasoline and diesel.

Fuel suppliers with products that are responsible for at least 200,000 t of emissions are regulated, as are large stationary sources that emit more than 25,000 t of CO2 equivalent on site.

The program begins with a total emissions cap of more than 28Mt CO2 for 2022. This limit will then be lowered each year until it reaches 3Mt in 2050, a 90 percent reduction based on the average emissions from 2017-19.

Alternatively, offset developers can create so-called Community Climate Investments (CCIs) in communities for environmental justice. Each CCI – which corresponds to a reduction of 1 t CO2 equivalent – will be valued at USD 107 / credit from 2023, with an increase of USD 1 / year. The credits cannot be traded and may only be held for two fulfillment periods.

Companies can use CCIs to cover up to 10 percent of their emissions obligations during the first compliance period, which runs from 2022-24. The limit increases to 15 percent in the second compliance period until 2027 and to 20 percent after 2028.

Oregon is unlikely to join the WCI because its program design does not align with the California and Quebec cap-and-trade programs.

However, Washington State is developing a WCI-modeled program set to start in 2023. The state recently announced that it has joined the WCI in order to use the existing systems to conduct its auctions.

Washington’s program includes industrial plants, power plants, natural gas suppliers and other fuel suppliers that emit more than 25,000 tons of greenhouse gases annually, with an initial cap of 66 million reductions in its greenhouse gas emissions by 2030 from 2005 levels and net to zero by 2050.

The Department of Ecology responsible for developing the program recently announced that it would adopt three of California’s carbon offsetting protocols, including forestry, urban forestry, and livestock.

By Julia Martinez


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