California carbon twice as expensive as European
The cost of carbon in California has risen sharply while the equivalent in the European Emissions Trading System has so far gained little from yesterday's long-awaited reform proposals
London, 26 July 2012 – A reduction in regulatory uncertainty in California, and concern about a nuclear
more than double that in the much longer‐established European Union Emissions Trading System.
The value of a California Carbon Allowance (CCA) for delivery in December 2012 closed at $19.50 per
metric ton of CO2 equivalent (EUR16.04/tCO2) on 24 July, the highest closing price of the year so far.
The price for European Union Allowances (EUAs) for delivery in December 2012 closed at EUR7.20/tCO2
on the same day.
The much higher price in California may be surprising to Europeans, given perceptions about American
reluctance to take action on climate change. Ironically, the California scheme was almost derailed earlier
this year by legal action taken by an environmental action group (the Association of Irritated Residents)
who insisted that the scheme was not strict enough.
The price of EUAs has remained low despite the European Commission's release yesterday of its
proposal for changes to auctioning volumes in Phase III of the EU ETS, which begins in 2013. These
changes, if approved by both Parliament and the Council, would delay some of the auctioning volume
originally intended for the early years of Phase III, into the later years. The changes were proposed by
the European Commission in response to widespread criticism that the price in the EU ETS is too low to
promote the necessary investments in clean energy.
In the long term, Bloomberg New Energy Finance expects prices in both the Californian and EU ETS to
rise significantly, since the emission reduction targets in both parts of the world for the period beyond
2020 are likely to continue to strengthen. At the moment the firm's base case forecast for the spot price
of an allowance in 2020 in both markets is the same, at EUR45/tCO2 ($55/tCO2). The fact that the
forecasts are the same is purely coincidental and belies significant structural differences in the two
markets; the EU ETS has access to the Kyoto market for international credits whereas California does
not; and the largest sector in the EU ETS is the power sector while transportation is the largest emitter in
the California market.
Matthew Cowie, head of carbon market research at Bloomberg New Energy Finance, commented,
"While it appears that Europe has the political will to give the EU ETS more teeth in the long term, the
process of fixing the problems continues to suffer delays. A month ago most market participants thought
that changes to the Auctioning Regulation could be in place by the end of 2012, but most commentators
now expect that this will take well into 2013 to accomplish. This market needs both ambition and
structural stability in order to regain its lost importance."
Michel Di Capua, head of North American research at Bloomberg New Energy Finance, commented,
"After several failed attempts to introduce cap‐and‐trade at the national level, there's a widespread
belief that carbon markets are dead in North America. Not so. We are on the verge of seeing the
emergence of a meaningful tradable market that over the long run will transform California's power,
industrial, and transport sectors. The business community should take note; this market will impact some
of the country's largest utilities and some of the world's biggest oil and gas players, among others."
Futures contracts for the California market have been trading since 2011. Its underlying spot market is
due to begin in 2013. The EU ETS saw the first futures trading in 2003, and the start of spot trading in
2005.
ABOUT BLOOMBERG NEW ENERGY FINANCE
Bloomberg New Energy Finance is the world's leading independent provider of news, data, research and
analysis to decision makers in renewable energy, energy smart technologies, carbon markets, carbon
capture and storage, and nuclear power. Bloomberg New Energy Finance has a staff of 200, based in
London, Washington D.C., New York, Tokyo, Beijing, New Delhi, Singapore, Hong Kong, Sydney, Cape
Town, São Paulo and Zurich.
Bloomberg New Energy Finance serves leading investors, corporates and governments around the
world. Its Insight Services provide deep market analysis on wind, solar, bioenergy, geothermal, carbon
capture and storage, smart grid, energy efficiency, and nuclear power. The group also offers Insight
Services for each of the major emerging carbon markets: European, Global Kyoto, Australia, and the
U.S., where it covers the planned regional markets as well as potential federal initiatives and the
voluntary carbon market. Bloomberg New Energy Finance's Industry Intelligence Service provides access
to the world's most reliable and comprehensive database of investors and investments in clean energy
and carbon. The News and Briefing Service is the leading global news service focusing on clean energy
investment. The group also undertakes applied research on behalf of clients and runs senior level
networking events.
Featured Product
HPS EnduraCoilTM Cast Resin Medium Voltage Transformer
HPS EnduraCoil is a high-performance cast resin transformer designed for many demanding and diverse applications while minimizing both installation and maintenance costs. Coils are formed with mineral-filled epoxy, reinforced with fiberglass and cast to provide complete void-free resin impregnation throughout the entire insulation system. HPS EnduraCoil complies with the new NRCan 2019 and DOE 2016 efficiency regulations and is approved by both UL and CSA standards. It is also seismic qualified per IBC 2012/ASCE 7-10/CBC 2013. Cast resin transformers are self-extinguishing in the unlikely event of fire, environmentally friendly and offer greater resistance to short circuits. HPS also offers wide range of accessories for transformer protection and monitoring requirements.