Summary:
The US Supreme court overturned the EPAs ability to regulate emissions from power plants. That means states would determine heat rates and emission thresholds for power plants. This has more of an impact on Coal plants that will now continue to operate in red states. The federal government can still regulate emissions provided those legislations are approved by Congress.
This ruling does not affect Massachusetts Vs EPA where the EPA can provide waivers under the Clean Air Act for states that wish to set higher tailpipe emission standards.
There is as of now no impact on the WCI or RGGI Carbon market as those programs are regulated by the states. The Clean Air Act itself is safe, being a piece of legislature passed by Congress.
Before the ruling, compliance entities and managed money, reduced exposure in anticipation that the ruling would have a negative impact on the cap-and-trade program. The market rebounded quickly after the ruling as a deeper analysis of the verdict showed no fundamental impact on the California Cap-and-trade program or its linkage with Quebec.
Technicals:
Trading activity decreased as market players remained hesitant prior to the US Supreme court verdict. Secondary market positions were reduced by 28M tons WoW. The reason for the huge fall in open positions was due to expiry of the front contract.
Trader Positions:
CFTC V22: Positions across all traders (27th June)
Total OI decreased by 28M tons, primarily as a result of the expiring Jun22 contract. Both Compliance entities and fund managers reduced their long and short positions. Compliance entities reduced their long positions by 7M tons and reduced short positions by 7M tons. Managed money reduced long positions by 7M tons.
CFTC V22: Fund Manager change in positions (27th June)
Fund managers decreased exposure to long positions in anticipation of the SC ruling against the West Virginia vs EPA.
CFTC V22: Covered entity change in positions (27th June)
Compliance entities sharply decrease both long and short positions.
Market Fundamentals:
Analyst:
Anant Jain (ajain@californiacarbon.info)
Craig Rocha (cmrocha@californiacarbon.info)
Megha Jha (mjha@californiacarbon.info)
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