Political Risk

• Market forecasts are not expected to materially change based on changes to the federal administration. In the US, cap-and-trade markets are state-run programs that have persisted under several federal administrations.
• Federal program implications: If an administration creates a federal carbon cap-and-trade program, it would work in concert with existing state programs
• CARB has been outspoken that the CCA market will be the “workhorse” for achieving state decarbonization goals
• Revenues generated from the auctions generate considerable funding for the state
• California's cap and trade program is a robust and scaled market that has been in operation since 2012.

Innovation Risk

• As renewables and innovative cleantech become more scalable, we could see less demand for allowances
• However, the program will likely be adjusted by the regulator through the regular reform process to keep the market in balance
• Innovation is a positive outcome for the state’s climate goals and makes a strong case for the effectiveness of the program