California carbon down 3 pct ahead of electricity meeting

May 4th, 20124:32 am @

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Thu May 3, 2012 7:59pm EDT

* Trading down 63 percent from previous week

* Traders await insight on electricity import rules

SAN FRANCISCO May 3 (Reuters Point Carbon) – California
carbon allowances (CCAs) for delivery in 2013 closed at
$15.50/tonne on Thursday, down 50 cents from a week ago, as
market players held back on trading ahead of a key regulatory
meeting on Friday that they hope will give new market players
more clarity about their obligation in the cap-and-trade scheme.

Just 30,000 CCAs changed hands on the
IntercontinentalExchange (ICE) this week, a 63 percent drop from
the previous week.

Sources said the market was quiet in the run up to the
California Air Resources Board’s (ARB) workshop in Sacramento
that will focus on regulations pertaining to electricity
importers.

Under California’s “first deliverers” system, the first
entity that sells power to the California grid, ranging from
power producers to banks, has to hold allowances to cover the
related greenhouse gas emissions.

California imports about a quarter of its electricity from
out of state, which tends to come from more carbon-intensive
sources like coal plants and accounts for about 50 percent of
California power-sector emissions.

At this point, the CCA market moves more on
regulatory developments than supply-and-demand fundamentals,
so brokers and traders said they’ll be watching the meeting
carefully to see if it might entice new entities to engage with
the market.

“The hearing could definitely have an impact on the market
because a lot of market maker-type entities, like banks, own a
lot of the PPAs (power purchase agreements) for out-of-state
generation in California,” one broker said Tuesday.

“So if they get a little more clarification from ARB on what
they are liable for from a compliance standpoint, they may begin
to translate that into market activity,” he said.

RESOURCE SHUFFLING

The workshop will also examine the controversial issue of
“resource shuffling.”

Resource shuffling is when an out-of-state power producer
sends more of its clean electricity generation to California to
make it appear that it has reduced its emissions while keeping
its dirty generation in state.

California has indicated that since it would not provide any
environmental benefit, resource shuffling will be banned by the
program.

But lawyers have said it’s unclear whether the state has the
legal authority to enforce the ban, since California is
prevented from regulating economic activity taking place in
other states.

In its regulations, ARB requires power producers to swear an
oath that they will not engage in the practice.

OFFSETS

Carbon offset credits derived from projects that destroy
ozone-depleting substances (ODS), which will count for
compliance with the program, were offered at $8.50/t on
Thursday, sources said.

“There’s not a lot of bid-side interest. We’ve heard
indications of $7.50-$7.75/t, but nothing is significantly
materializing there,” one broker said.

He added that interest in the market for Climate Action
Reserve Climate Reserve Tonnes (CRTs) is fading as market
participants await the introduction of official ARB-issued
credits, which the air regulator has not yet started minting.

On Thursday ARB announced it would begin accepting
applications for companies wanting to serve as offset
registries, verifiers and early action programs.

(rory.carroll@thomsonreuters.com; Editing by Bob Burgdorfer)

Article source: http://www.reuters.com/article/2012/05/03/pointcarbon-ccas-idUSL1E8G3TF120120503