The California market regulator, CARB, released a statement earlier this week confirming 2 key items: They plan to 1) Remove at least 180mm tons of supply, which sets a bullish minimum for expectations, and 2) Raise the cost containment levels. This could include the price floor, which would be huge for the intrinsic valuation. The cap adjustments have already been a topic of discussion, yet the cost containment increase is something that hasn't received much attention. The full scope of the expected amendments included in the statement are copied below:

• Removal of at least a total of 180 million allowances from 2026-2030 annual budgets from the auction and allocation pools of allowances to align with the 2022 Scoping Plan and reflect updates to the AB 32 Greenhouse Gas Inventory and up to 265 million allowances in aggregate removed from 2026-2045 annual budgets
• A one-time increase in the prices of the cost-containment provisions to better align with the most-recent federal assessment of the social cost of carbon
• Updates to triggers for a corporate association group among registered entities to deter and reduce opportunities for market manipulation
• Implementation and clarification updates to the offset protocols for Livestock Projects, Mine Methane Capture Projects, and Ozone Depleting Substances Projects based on the latest information and science
• Updates to allowance allocation to electrical distribution utilities and select industrial sectors to reflect updated data
• Updates to reflect the Extended Day Ahead Market being developed by CAISO

The market quickly reacted to the announcement, with CCAs jumping to a high of $38.65 on strong volume, closing 3% higher on Wednesday and above the 200-day moving average of $38.44. After another big volume day Thursday, CCAs saw lighter market activity to close the week Friday, with prices slipping back below the 200-day.

It appears there was a slight typo in the first bullet of the announcement, where it presumably should be a maximum of 265 million allowances removed from the 2026-2030 budget, according to previous proposal discussions. CARB has already presented two possible trajectories of tightening emission caps to achieve the goal of 48% reduction of greenhouse emissions in 2030 (vs. 1990) and the goal of carbon neutrality by 2045:

• Option 1: a less aggressive, 180Mt total cap reduction through 2030, with a subsequent linear decline to a net-carbon neutral cap of 30Mt in 2045
• Option 2: a more aggressive 265Mt total cap reduction through 2030, followed by a plateau through 2037, and resumption of a linear decrease to the 30Mt cap in 2045

Both trajectories have the same endpoint, eventually converging by 2045, regardless of the initial level of aggressiveness. So, we'll see supply drastically reduced in either scenario, though how these reductions are spread over time is still yet to be determined.

The full statement can be found here. CARB is expected to release its full reform package in the coming weeks.

Carbon Market Roundup

The global price of carbon is $49.08, down 0.5% from the week prior. EUAs are down 3.6% at €62.28. UKAs trended up 3.5% to £38.88. CCAs are 3.8% higher for the week, at $38.33. RGGI is up 7.9% at $20.79.