Cost-Saving Strategies for California and Quebec Regulated Emitters

Cost-Saving Strategies for California and Quebec Regulated Emitters

Cost-Saving Strategies for California and Quebec Regulated Emitters

by: Derek Six | Chief Business Officer | June 29, 2021

November 1, 2021, is the compliance deadline for emitters covered under the California and Quebec Cap-and-Trade programs. By November 1st, emitters are required to submit the compliance instruments representing their full triennial (2018-2020) emissions. One of the simplest compliance cost-saving strategies is for entities to take full advantage of their ability to substitute offsets for up to 8% of their total obligation. However, for the previous compliance period covering 2015-2017, California entities surrendered only 6.36% of the possible 8% offsets, and Quebec entities surrendered only 3.5% of the possible 8% offsets. Why did emitters leave so much potential savings on the table? With offsets currently selling at a historically large discount to allowances, will entities again leave substantial savings on the table, or will they utilize new offset buying options to help them realize all of the possible savings? 

Missing Out on Potential Savings

Allowances (permits for one metric ton of CO2e) are currently priced at approximately US$21.77.  Offsets are currently priced between US$13.00 and US$15.00, depending on type and risk profile, providing emitters a discount of 30-40%. It should be hard to ignore such significant cost savings, but there may be a few possible reasons emitters would choose not to maximize their savings: 

  1. In previous compliance periods, information about offsets may have not been available or widely understood 

  2. Market access to offsets may have been limited 

  3. Perceived risks may have prevented buyers from utilizing offsets

While the first two explanations may have been valid in the past as emitters became accustomed to the program, we suspect that it is the last possibility of perceived risks that had the greatest impact on offset utilization. Would-be buyers of offsets may have been dissuaded by the complexity of California’s invalidation rules, and their accounting departments may have warned them about the difficulty of accounting for the possibility of invalidation.  While less than 0.1% of California-issued offsets have been invalidated, such a possibility may have outweighed the cost savings for some buyers.

Understanding the Risk

Before emitters consider a solution, it is important for them to understand the various types of offset buying options that currently exist in the market: 

  1. Quebec-issued Offsets:  these offsets do not have buyer liability, but because Quebec has issued only 1.05 million offsets, this category is not an available buying choice. 

  2. California CCO-8s:  when initially issued, California has regulations that would allow them to invalidate offsets for up to 8 years if a regulatory compliance violation is later discovered. 

  3. California CCO-3s:  offsets whose invalidation period has been reduced to 3 years. 

  4. California GCCOs:  offsets exposed to invalidation risk but sold by a seller offering to replace them if they are ever invalidated. 

  5. California CCO-0s:  offsets whose invalidation period has expired. 

Confusing, no doubt, and definitely likely to dissuade many buyers. However, one option in this list is relatively new to buyers that offers no risk and a simple transaction.

Consider California CCO-0s

California CCO-0s, the final category in our list above, are California compliance offsets that are not exposed to the possibility of invalidation because their invalidation period has expired.  CCO-0s are the most expensive of the quality levels, currently at US$15.00 or a 30% discount to allowances, but they cannot be invalidated.  Because the risk period has expired, there is no need to enter into complicated GCCO (Golden/Guaranteed California Compliance Offset) contracts where the buyer relies on the contractual promises of the seller and the quality of the seller’s financial credit.  CCO-0 purchase contracts are simple and easy to execute. 

Some buyers will find that the price savings of purchasing CCO-8s or CCO-3s outweigh the risks, but the CCO-0 offsets represent an exciting new opportunity to reduce upcoming compliance costs for many emitters. 

If you would like to learn more about your options or purchase CCO-0s, please feel free to contact us.  We are happy to help and currently have CCO-0s available for purchase.

About the Author

Derek Six serves as Chief Business Officer at ClimeCo, where he leads the company’s cross-cutting business functions, the firm’s ODS management program, and a private equity fund ClimeCo manages. He holds an MBA in Investment Management and Portfolio Analysis from Pennsylvania State University’s Smeal College of Business.

ClimeCo Involved in the First California Carbon Offset Futures Transaction

ClimeCo Involved in the First California Carbon Offset Futures Transaction

Derek Six, Chief Business Officer
(484) 415-0501 or

ClimeCo Involved in the First California Carbon Offset Futures Transaction

April 8, 2018 (BOYERTOWN, PA) – ClimeCo Corporation is pleased to announce that on April 7, 2019, they participated in the first trade of the new California Carbon Offset futures contract (CCO Contract) that was listed by the Intercontinental Exchange (ICE).  The CCO Contract provides critical price clarity and hedging capabilities to entities involved with offset credits in the California Cap and Trade program.  This new product will also contribute to market liquidity and spur the development of new projects.

As a leading developer of carbon offset projects in the California Cap and Trade program, ClimeCo is thrilled to support innovation in the offset marketplace.  “The launch of the new CCO Contract at ICE is exciting for ClimeCo and our offset project partners,” said Derek Six, ClimeCo’s Chief Business Officer.  “The availability of this contract and the transparent price quotes it will offer is going to spur investment in new projects.  We have been looking forward to the launch of an offset contract for a long time and it was rewarding to be part of this first transaction today.”

The new ICE contract is a futures contract for the physical delivery of California Carbon Offsets, where the invalidation period of the offset has been exhausted.  Contracts have so far been listed as far out as December 2022, offering market participants long-term price visibility.  For many of our clients, this new contract will be critical in understanding the compliance options that are available to them and their related costs.

The California Cap and Trade program began in 2012 and sets limits on the Greenhouse Gas (GHG) emissions in the state, which decline over time.  Emitters comply with the regulation by submitting compliance instruments equivalent to their emissions each year.  While offsets represent a small piece of the compliance program (entities can utilize offsets for up to 8% of their total obligation), offset projects offer many critical GHG benefits, like engaging non-capped sectors in the economy, spurring technological innovation, and helping to bring new practices and technologies to scale.  Offset projects also offer a wide variety of other co-benefits, such as improvements to local air and water quality, protection of ecosystems, and employment.

To learn more about ClimeCo, about how you can be a part of this growing business or how your company can benefit, contact us here.

ClimeCo Corporation is a respected project developer, advisor and trader of environmental commodity market products. Specialized expertise in regional criteria pollutant trading programs, California cap‐and‐trade, voluntary markets and project development and financing of internal CO2 abatement systems complement ClimeCo’s diverse commodity portfolio. Within the Climate Action Reserve, ClimeCo is the largest developer of U.S. GHG‐offset projects and producer of U.S. voluntary carbon offsets, managing projects that reduce more than four million tonnes of CO2e per year. For info, contact 484‐415-0501, or