Offset Pricing Monthly Market Digest – March 2019

Offset Supply Information:

All CCOs issued to date: 151.95 million
Compliance credits awaiting issuance: 18.03 million

CA and General Market Commentary:

• ARB issued 6 million new offsets in March and reduced the ROC backlog to 18.03 million, its lowest point in several years.
• On April 8^th, the Intercontinental Exchange (ICE; theice.com) listed and traded the first California Carbon Offset futures contract. ClimeCo was pleased to be involved in this historic trade.  The contract is for the physical delivery of CCO-0s – offsets whose invalidation period has expired.  The first trade was for delivery of CCO-0s in December 2021 and was priced at $16.66.  While the contract does not directly provide pricing for the CCO-8s and CCO-3s generated by offset projects today, it does provide a price signal that will be useful for developers and allows a mechanism for hedging offset credits  Using the $16.66 trade price, and the April 5^th settlement price of the DEC21V21 allowance futures contract of $19.15, the trade implies a 13% discount for the risk-free CCO-0 versus allowances.  It is important to note that this new contract does not distinguish between DEBs and non-DEBs credits (“DEBs” describes credits that qualify as having direct environmental benefits in the state of California.  Emitters are limited, from 2021 onward, to a maximum offset usage of 4% for non-DEBs credits).