Offset Pricing Monthly Market Digest – August 2018

Offset Supply Information:

All CCOs issued to date: 116.71 million
Compliance credits awaiting issuance: 33.39 million

CA and General Market Commentary

Offset prices climbed in August even further to historically elevated levels, but with an important caveat- the prices shown for offsets above are for offsets that can be delivered before the November 1^st triennial compliance deadline. This year is of particular importance, as entities are going to be completing their final submissions for the full 3-year 2015-2017 triennial period.

On September 4th, ARB released their Proposed Amendments to the Cap and Trade Program. Included in this release were minor changes to the process for registering and issuing offset credits and some significant changes related to Allowances.  In particular, ARB has introduced new mechanisms to protect against rapid increases in compliance prices.  ARB proposes a price ceiling which starts in 2021 at $65, and two Reserve Tier price levels that we refer to as “speed bumps”, which begin in 2021 at $41.40 and $53.20.  Reserve Tiers are prices at which the ARB would inject additional allowances into the market, via a special auction.  The Reserve Tiers, and the ceiling, effectively attempt to set maximum price expectations in the program for the period 2021-2030.  Both the Reserve Tiers and the Price Ceiling, escalate at 5% per year plus CPI-U, in line with the escalation of the auction price floor.