Post summer blues hit the Californian carbon market

Not wanting to be outdone by Europe, a flurry of ‘bearish’ news hit the Californian carbon market during late August.

Four factors are behind the recent change in sentiment: the extension of the Diablo Canyon nuclear facility (flagged previously on Carbon Risk as a risk here, here and here), the state’s decision to ban gasoline powered vehicles by 2035, failing to agree on a more aggressive 2030 emission reduction target, and finally the sign-off of the Inflation Reduction Act (IRA).

The latest quarterly auction data shows that CCA prices settled at $27 per tonne, the second largest discount to the secondary market on record. The poor performance partly a factor of the aforementioned factors looming large, but also a decline in involvement from investment institutions and an increase in the cost of collateral.

Lets dive into each of the four factors and where this leaves the Californian carbon market versus the EU ETS.