2017 Cap and Trade Auction Results: Strong Markets Continue to Generate Revenues

On December 6th, Ontario announced the results of the province’s fourth and final cap and trade auction of 2017. This was the last auction to take place before Ontario links to California and Quebec’s carbon market on January 1st, 2018.

A total of 20,898,000 current (2017 vintage) allowances and 3,116,700 future (2020 vintage) allowances were sold at the auction which took place on November 29, 2017. Figure 1 illustrates the percentage of available allowances sold and the settlement price for the four auctions that took place since the system launched in January 2017.

Figure 1: Ontario’s 2017 cap and trade auction results – percent available allowances sold and settlement price. Created using auction summary data from the province.

Current allowances were sold-out for the first three auctions. The fourth auction saw demand for current allowances fall slightly, with 83% sold. This result points to good alignment between market needs and the number of allowances made available.

The market placed increasing value on the future allowances, with the last two auctions of the year selling-out of these vintages and their settlement price spiking during the final auction to the highest price paid over the year. This signals confidence in the market’s future and bodes well for the longevity of the system.

Figure 2 shows the total number of allowances sold during each auction, with sell-outs being indicated by the red cap.

Figure 2: Ontario’s 2017 cap and trade auction results – number of allowances sold. Created using auction summary data from the province.

These four auctions have raised a total of $1.92B CAD, which will be invested into cutting emissions across Ontario. Direct investments from this revenue include the following programs, as outlined in this provincial announcement:

California and Quebec’s joint cap and trade program has also had four auctions in 2017, raising a total of $2.02 billion USD and $619 million CAD for their respective climate action funds this year. Figure 3 shows the percentage of available allowances sold and the settlement price for this year’s auctions. Figure 4 shows the total number of allowances sold. The last three auctions resulted in sell-outs for current vintage allowances. The last two auctions saw both current and future allowances sell out. Both current and future allowance prices increased at each auction.

Figure 3: California and Quebec 2017 joint cap and trade auction results – percent available allowances sold and settlement price. Created using data from California’s auction archive.

Figure 4: California and Quebec 2017 joint cap and trade auction results – number of allowances sold. Created using data from California’s auction archive.

Since coming into place in 2012, California’s cap and trade system has raised a total of $11.6B USD with $6.5B of that being allocated to California’s Greenhouse Gas Reduction Fund and the remaining $5.1B going to utilities. Quebec’s system has raised $2.1B CAD since 2013 for the province’s Green Fund. Adding Ontario’s $1.92B CAD raised in 2017 brings the total investment revenue brought in by the Western Climate Initiative jurisdictions to roughly $18.8B CAD ($14.6B USD).

Both Ontario’s cap and trade program, and the joint California-Quebec program, have shown consistent and increasing strength and market acceptance through 2017. Climbing prices and sellout auctions—particularly of future allowances—may signal increasing confidence in the integrity and longevity of the carbon market. The linking of California, Quebec and Ontario’s systems on January 1st 2018 is expected to result in an even more stable, robust cap and trade market. These jurisdictions continue to demonstrate climate leadership through cross-country collaboration and the use of smart market mechanisms to drive down emissions in an economically efficient way.

For more information or analysis on how the cap and trade system could impact your organization, contact Laura Zizzo (laura@zizzostrategy.com) or Joanna Kyriazis (joanna@zizzostrategy.com).

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