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Thomson Reuters Point Carbon lowers California carbon price forecast by two thirds

Reduced emissions forecast; emissions scheme now looks to be over-allocated through 2019

Washington, 9 September 2013

Emissions in the state of California will be significantly lower than initially expected, remaining below the allowance cap until at least 2017 with offsets subsequently making the market oversupplied through 2019, according to analysis by Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, and forecasting for the energy and environmental markets.

Based on a revised emissions model, Thomson Reuters Point Carbon now estimates that emissions covered under California’s cap-and-trade scheme will decline to 339 Mt in 2020, four percent below 2013 levels. Accordingly, long-term carbon allowance prices will drop 66 percent from previous expectations, with the WCI fair price assessment for allowances remaining at the floor price, $11/t in 2013 and $15/t in 2020. The average allowance price is forecast to be $13/t through this period.

“Emission reduction policies such as California’s aggressive Renewable Portfolio Standard, and slow economic recovery have dramatically reduced emissions in the state, and we feel these trends are likely to continue” commented Ashley Lawson, senior analyst at Thomson Reuters Point Carbon, continuing: “Our new California emission forecast is nine percent lower overall than our previous forecast, with major implications for WCI allowance prices.”

“We forecast emissions will be below the supply of allowances and offsets in the market through 2019 and thus allowance prices will be near the floor price through 2020. This is significantly different than our previous estimates, mostly because we’ve enhanced the way we account for the reported emissions data” added Lawson. Covered entities in California – facilities, power importers, and fuel suppliers – emitted approximately 353 Mt in 2011, already 25 Mt below the 2015 cap. Greenhouse gas emissions from covered California-based facilities, which have had to report since 2008, declined 15 percent from 2008 to 2011, the last year for which data is available.

“Based on this fresh look at the data, we now think 2013 allowance prices will fall to somewhere near this year’s floor price of $10.71/t”, said Lawson. “This downward revision could signal trouble ahead for the market’s liquidity.” California Carbon Allowances (CCAs) currently trade on the Intercontinental Exchange for around $13/t.

A recent decline in transportation fuel emissions has also contributed to the reduced emissions forecast, falling from a peak of 172 Mt in 2007 to a low of 156 Mt in 2010 as high oil prices and the recession reduced demand. Lawson concluded: “We expect some recovery in these emissions this year and next, but after that, policies like California’s Low Carbon Fuel Standard and the federal fuel efficiency standards will start driving down emissions to their lowest levels in a decade.”


Notes to Editors:

·         California’s cap-and-trade program initially covers only emissions from power generation and large industrial facilities. Compliance in these sectors began in 2013. Starting in 2015, the program will expand to cover emissions from the combustion of fuels, including transportation fuels.

·         Beginning in 2014 the California cap-and-trade program will link with Quebec’s carbon market so that allowances and offsets issued in one jurisdiction may be used for compliance in the other. Our allowance price forecast is for this combined Western Climate Initiative (WCI) market.

·         The California Air Resources Board (CARB) is the agency established by California's legislature in 1967 to attain and maintain healthy air quality, conduct research into the causes of and solutions to air pollution, and systematically attack the serious problem caused by motor vehicles. CARB is the chief implementing agency for Assembly Bill 32 (AB32) and is designing and monitoring the cap-and-trade program.

 

For further information, or if you would like to speak to one of our analysts, please contact: 

Jake Hemingway
PR Specialist, Thomson Reuters Point Carbon
Mob: +44 (0) 207 542 5204
E-mail: jake.hemingway@thomsonreuters.com

Ashley Lawson
Senior Analyst, Thomson Reuters Point Carbon
Mob: +1 202 460 5702
E-mail: ashley.lawson@thomsonreuters.com