News that Donald Trump will withdraw the country from the Paris Agreement did little to knock California’s successful carbon market last week as trading activities coincided with midweek gains across the CCA vintages. The President’s latest neglectful actions on environmental stewardship now place the country along with only two others not part of the international accord. Conversely, California’s leader, Gov. Jerry Brown, reaffirmed the state’s climate leadership, outlining his intentions on linking California’s cap-and-trade program with China’s incipient carbon market. The announcement was made the same day as Trump with Gov. Brown boarding a flight on Friday to visit Chinese government officials.

Meanwhile in the state capitol, the cap-and-trade extension bill AB 378 failed to win the support of the Assembly following a prolonged sitting on Tuesday afternoon. The bill which vows to link the emissions trading program with criterion air pollutants was rejected by both Republican and Democrat Assembly members, concluding a lively week for the market.

With zero movement over the week’s start, trading activities warmed up on Wednesday. Values on the current front, Jun 17, and the benchmark, Dec 17, rose by USD 0.05 whilst relatively lower gains were felt further down the futures curve. The Jun 17 contract was the most traded contract, clearing, 1,601,000 tons and closing the week at USD 14.10.

In total, 5,992,000 tons of carbon traded this week, 73% of which was concentrated on the 2017 vintage whilst 910,000 V18s and 640,000 V19s also cleared the exchange. With the large surrender obligations of compliance period 2 (2015-2017) approaching, V17s continue to be in heightened demand to their V18 counterparts which are not eligible for compliance obligations until CP 3. As a result, the vertical spread between the vintages has risen. At the close of trade last week, the V17 benchmark was trading at USD 14.28, USD 0.10 above the V18 benchmark which closed at USD 14.18.

Revisiting deliveries, the Dec 17 benchmark was the second most traded contract with 1,241,000 tons traded, a decline from the previous week. The Jun 18 and Sep 18 future contracts both saw 1,000,000 tons of trade while Dec 18 saw 1,150,000. The contribution to total traded volume was spread out with the highest being the current front at 26.72% and the lowest for Jun and Sep 18 at 16.16%.

Open interest creation remained positive and relatively stable with a net change of 4,105,000 contracts. Jun 17, Jun 18 and Sep 18 were the largest contributors with a net change of 1,000,000 tons each. The Dec 17 and Dec 18 saw net changes of 265,000 and 840,000 contracts respectively.

The Ontario carbon market kept its cool with the second auction taking place this week. A slim 25,000 tons cleared as prices jumped by CAD 0.10 in tandem with the CCA price movement on Weds. The OCA ended the week at CAD 19.25, USD 0.01 lesser than the CCA based on Friday’s exchange rate.

Billy Hamshaw (billy@californiacarbon.info)