U.S. Carbon Markets to Jump 270 Percent

California markets increasing fourfold yearly, predicted to drive national markets to $2.5 billion.

carbon market, u.s. carbon markets, cap and tradeDriven by increasing California markets, the North American carbon market will more than double in value to $2.5 billion in 2013.

Power suppliers in California created a strong demand for California carbon allowances (CCAs), setting up the market to increase to over $2.3 billion, according to Thomson Reuters Point Carbon, an analyst for energy and environmental markets.

CCA prices are expected to increase to around $11 per ton, slightly above minimum prices. The low prices, only $.29 above minimum price, may be due to an oversupply of allowances.

As the California Air Resource Board (CARB) auctions 58 Mt vintage 2013 (V13) allowances and 38 Mt vintage 2016 (V16) allowances, the primary market will increase in size.

In contrast, within the secondary CCA market prices are set to be higher, estimated to average $13 per ton, which is considerably more than the global average price of around $8 per ton.

"While the primary market for CCAs will remain cautious, the secondary market will become dominated by financial players with large compliance obligations and extensive trading experience," said Ashley Lawson, senior analyst of the North American market. "[These players] are willing to pay a premium to hold financial positions instead of buying physical allowances, leading to higher prices."

Beyond California, however, North American carbon markets as a whole are growing at a slower pace.

The Regional Greenhouse Gas Initiative market is valued at $179 million on 91 million short tones while the Western Climate Initiative offset market settled lower at $66 million on seven million tons.

"The beginning of compliance in California's cap-and-trade program marks a major milestone for the Western Climate Initiative, and 2013 will bring significant changes to the Regional Greenhouse Gas Initiative as states conclude the program review," said Olga Chistyakova, a market analyst.

While both markets may still face significant legal and regulatory risks, Chistvakova forecasted that market participants would engage North America carbon markets in a historic way in 2013.