Offset Pricing Monthly Market Digest – May 2019

Offset Supply Information:

All CCOs issued to date: 154.78 million
Compliance credits awaiting issuance: 23.06 million

CA and General Market Commentary:

On May 22^nd, ARB released the results of the second quarterly allowance auction for 2019. The clearing price for current vintage allowances was $17.45.  The auction cleared $0.76 over our estimate for the 2020 auction reserve price.  The auction was strongly subscribed with a bid-to-cover ratio of 1.46.  The result may be even more bullish than it appears considering that PG&E did not participate in the auction, likely due to PG&E’s ongoing bankruptcy negotiations.  As an entity with one of the largest compliance obligations in the program, their absence may lead to a later need to procure allowances.

Year-to-date, only 13.32 million offsets have been issued by ARB. If this issuance rate continues at a similar pace for the remainder of the year, 2019 would see only 32 million offsets issued.  That result would be a substantially lower annual issuance rate than the 54.17 million offsets issued in 2018.