Carbon Market Round Up: August 2023

The Carbon Monthly Series provides a window into pricing movements of key compliance and voluntary markets and broader market trends.

Voluntary Market Updates

British Columbia-based carbon capture company acquired for U$1.1B⁽¹⁾

An American petroleum corporation is buying a Canadian clean technology developer for U$1.1B, aiming to accelerate development of its carbon dioxide removal business. Representing the largest financial transaction in the carbon dioxide removal ("CDR") industry to date, the acquisition to drive the buyer's shareholder value through improved technology innovation and accelerated cost reductions. The company also expects new revenue streams in the form of technology licensing and royalties to be realized. The two companies have been partners since 2019 and started construction on the first large-scale plant last year, which is expected to cost at least U$1B.

Biden invests $1.2bn in regional carbon clean-up hubs⁽²⁾

On August 11th, the Biden administration announced it will award US$1.2Bn in support of two direct air capture projects proposed. This represents the first round of funding, out of a total U$3.5B earmarked for investment towards four Direct Air Capture (DAC) hubs, which will be overseen by the U.S. Department of Energy. The Biden administration aims to remove 1 million tons of CO2e at each of the four hubs annually by 2030. According to BloombergNEF, the market for CDR could reach U$1T by 2037.

Montreal-based carbon capture start up welcomes CEO⁽³⁾

A Montreal-based venture commercializing carbon removal and storage solutions at scale, announced that Damien Steel will be the ventures CEO. Damien brings more than 20 years of venture capital and operator experience and will guide the company as it aspires to become the world's first "gigaton-scale carbon capture company".

Compliance Market Updates

WCI cap-and-trade auction settles at highest level in program history during Q3⁽⁴⁾

The August current vintage carbon auction settled at an all-time high, as did the advance auction vintage. The auction sold all of the nearly 55.8 million current vintage allowances on offer for $35.20, $12.99 above the 2023 auction reserve price of $22.21 and $4.35 above the previous high-water mark set back in Q2 2022. The settled price was 16.1% above the $30.33 clearing price from the May auction. Meanwhile, the advance auction sold all the 7.6 million V26 allowances on offer at a settle price of $34.16, which is 13.7% above the $30.05 clearing price from the Q2 auction. Traders said regulatory expectations driven by the July ARB scoping workshop, which indicated a potentially more stringent 2025-30 programme cap, were largely responsible for the observed record clearing price.

Revamped U.S. power plant carbon regulations offer trading and CCS as compliance options⁽⁵⁾

The U.S. EPA published draft rulemaking proposing to slash CO2 output from fossil-fuel fired electricity generators through mechanisms including emissions trading and carbon capture and storage. The combined proposals as part of the rulemaking would enforce limits for new gas-fired combustion turbines, existing oil, coal, and gas-fired steam generating units, and certain existing gas-fired combustion turbines. The new CO2 standards would slash carbon emissions from the existing coal fleet and new natural gas units by 617 million tons over the 2028-42 period. Federal plans for emissions limits would go into effect for existing coal-fired plants in 2030, existing gas-fired combustion turbines that co-fire with low-GHG hydrogen would see their emissions limits take effect in 2032 and 2039, while those that install CCS would come in 2035. The limits for new natural gas-fired combustion turbines would apply as soon as they are constructed.

Washington carbon reserve auction sells out both allowance tiers⁽⁶⁾ The first-ever Allowance Price Containment Reserve auction in Washington's cap-and-trade programme sold all permits in both tiers and were well oversubscribed. There were 527,000 allowances in Tier 1 and Tier 2, which sold for $51.90 and $66.68, respectively. The allowances have no vintage and can be used to cover emissions from any compliance period. Only compliance entities were allowed to purchase allowances at the sale, and they cannot be resold or traded. Major financial institutions were also qualified bidders, indicating they have compliance obligations under the Washington program.

1. The Globe and Mail
2. BloombergNEF
3. Newswire
4. Carbon Pulse
5. Carbon Pulse
6. Carbon Pulse

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