Climate Solutions Group

Ontario’s Second Cap and Trade Auction Results

GHG Emissions

14

Jun 2017

0

The second Cap and Trade Auction, held on June 6th, completely sold out current (2017) emission allowances. 53.7% of future 2020 emission allowances were sold as well, which is more than double the amount that were sold in the previous auction.

The Ontario Cap and Trade program is off to a solid start. The first and second auction results have established level of credibility and legitimacy to cap and trade and indicates a level of industry buy-in.

The results of the auction are positive for registered participants of the program, clean tech providers, investors, society and the environment. The proceeds generated in the auction, estimated at $504,182,190, will be invested in Ontario to help businesses and families reduce GHG emissions through various initiatives outlined in Ontario’s Climate Change Action Plan.

The Auction results:

  • All the 25,296,367 2017 allowances were sold at a price of $18.72 and the highest bid was $31.68.
  • Out of the 3,116,700 available 2020 allowances, 1,674,00 were sold at a price of 18.30. The highest bidding prices was $25.00.
  • 1% of Current 2017 Vintage allowances and 92.8% of Future 2020 Vintage allowance were purchased by capped participants. This may indicate a small level of speculation as non-capped buyers are expecting prices to rise in secondary carbon markets.
  • The Market Monitor determined that the auction was consistent with the rules set out in Regulation 144/16.

Auction Analysis

The settlement price of the GHG allowances was higher than the Ontario Auction Reserve Price (floor price) by $0.42. This is reflective of the effect that strong demand has on prices. There is an expectation for strong demand to continue for emission allowances as the MOECC has projected proceeds of $1.8 billion per year. Ontario is well on its way to make this target. The next two auctions for 2017 are scheduled for September 6th, and November 29th.

The strong results in Ontario mirror the results in the May 16th WCI Joint Auction between California and Quebec which was also sold out. The recent California Court of Appeals decision has also created a strong signal for the long-term continuation of the WCI cap and trade program which Ontario intends to join in 2018.

Overall, the results should inform other capped emitters and policy makers that cap and trade is viable. Cap and trade is a strong foundation for moving towards a low carbon economy. Organizations participating in the program have demonstrated a strong level of support and confidence in cap and trade. This should inform the policy platforms in the next Ontario election. Establishing certainty around cap and trade will benefit Ontario businesses, investors and innovators and the entire economy in the long run.

Leave a comment