Key Takeaways

• The auction witnessed the participation of 56 qualified bidders, including 23 financial entities.
• Most financial entities in Washington, already have an interest in the CA-QC market.
• Bigger Compliance entities participate while smaller ones stay away.

On 28^th February 2023, Washington State held its first-ever auction which was organized by the Washington Department of Ecology. It marked a significant step forward in the state’s efforts to reduce carbon emissions and combat climate change. The auction was sold-out with all the total 6,185,222 allowances purchased at a price of $48.50. The revenue generated from the auction proceeds will be reinvested in programs to reduce emissions and support a transition to cleaner energy sources. In this article, we will be analyzing the auction’s investor participation, as well as the compliance participants.

23 of the 56 qualified bidders who participated in the auction were financial Entities.

The participating entities were a mix of financial entities and compliance entities. We have attempted to take a deeper look at both the financial and compliance entity trends. Financial participation stood at 41% against 28% in the California-Quebec market.

Further Breakdown of Investor participation

The financial entities have been broken into investment funds and traders. The investment funds included a mix of large asset managers, hedge funds, and other investing interests. Traders are generally, commodity traders and risk management forms on behalf of clients. Out of the 23 financial entities, 14 were funds, with the remaining seven being mainly commodity traders. Some of the major investment firms that participated in the auction include Bellus Ventures, Carbon Point Partners, Morgan Stanley Capital Group, Klima Holdings, Norther Trace Capital, and Environmental Commodity Partners. The commodity traders, saw Trafigura, Mercuria Energy, Macquarie Energy, and Trailstone Commodity trading.

Large overlap between California-Quebec financial entities

The auction participants were also mainly funds and traders that already have interests in California. Only four new funds participated and two near-trading entities joined in.

Compliance Entities Break-down of participation.

The EITEs remained away from participating in the auction, as they are due to receive free allocations for all their emissions in the first compliance period. We expect to see EITEs start participating at auction only in the second compliance period.

Emissions from participating entities to the total sectoral emissions

The transportation fuel suppliers show a major emitter of the sectors had participated. BP, Shell, Chevron, Phillips 66, and Marathon, were all present. The petroleum and electricity generation too saw most of the heavy emitters participating.

Smaller entities stay away from the auction

Though emissions are largely covered by the few compliance entities participating, most of the emissions are concentrated from a few companies. At large, the smaller entities have stayed away from the market. In the transportation sector, which has an emission coverage of 80%, less than 50% of the historically covered entities participated. While in the electricity sector that falls to 25%. Analyst Contact:

• Craig Rocha (cmrocha@ckinetics.com)
• Megha Jha (mjha@ckinetics.com)