California allowance prices have been on a tear this week after Governor Newsom released a document calling for more stringent 2030 emissions reduction targets. The CCA Dec-22 V22 contract closed at $32.50 on Thursday, up $1.90 or a 6.2% week-on-week increase.

Newsom’s proposal would raise California’s 2030 GHG target to a 55% reduction below 1990 levels, up from the current 40% level. Boosting the target could be very bullish for CCAs, as CARB, the state cap-and-trade regulator, may look to tighten the annual allowance cap for the carbon market.

California’s legislative session only has three weeks left to pass a law that includes this 55% GHG reduction target. However, California Assembly and Senate are currently reviewing potentially three bills to amend and incorporate enhanced climate action, including the budget trailer bill.

Another CCA-supporting policy under review is Senate Bill No.1391, which addresses the oversupply of allowances. For example, the proposal would reduce the annual supply of allowances by the number of offsets used in the prior year (this is already reflected in the supply/demand model). CARB, the state’s cap-and-trade regulator, would be required to complete a review of the carbon market every three years with the California Independent Emissions Market Advisory Committee (IEMAC) and Environmental Justice Advisory Committee (EJAC).

It also aims to alleviate pollution disparities in disadvantaged communities. Critics of cap-and-trade sometimes take issue with how regulated entities may be able to purchase allowances or offsets to comply with the CCA market instead of actually cutting their emissions. With this new provision, CARB will evaluate the impact of emissions limits on these communities.

SB-1391 has an Aug. 31 deadline to pass through the full Assembly and through the Senate again, though it is widely expected to be approved.

Also, be sure to check out the climate dashboard California recently rolled out: https://calepa.ca.gov/climate-dashboard/.  It covers the state’s progress toward reaching its emissions goals and offers resources on its [emissions reducing] Scoping Plan.