Quebec issues first offsets as California batch made ‘golden’

Published 01:36 on September 24, 2015  /  Last updated at 01:44 on September 24, 2015  /  Americas, Canada, US  /  No Comments

Quebec has handed out the first carbon offsets under its emissions trading scheme, according to an update on a government website on Wednesday, while California’s market has seen its first batch of offsets shed their invalidation risk.

Quebec has handed out the first carbon offsets under its emissions trading scheme, according to an update on a government website on Wednesday, while California’s market has seen its first batch of offsets shed their invalidation risk.

Quebec issued 161,510 offsets on July 7 to a project that destroys ozone-depleting substances (ODS), the Canadian province’s environment ministry website showed.

The project, which cut emissions between June 2009 and October 2011, had requested a total 405,131 offsets for that period.

The ministry said some of the abatement efforts could not be recognised because they did not meet all the offset protocol rules.

The project is owned by Recyclage Écosolutions inc. and the emissions reductions were verified earlier this year by Enviro-accès inc.

The project is one of five approved so far by the Quebec government, and the only one that destroys ODS. The other four capture methane from landfill sites around Quebec and prevent it from entering the atmosphere.

The province has offset protocols for projects that cut methane from agricultural manure and landfills, and ODS contained in insulating foam or used in refrigeration, freezer and air conditioning appliances.

Quebec is also currently developing rules for coal mine methane, forestation and reforestation projects. Those protocols are expected to be put up for public consultation later this year.

The Quebec and California markets, which are linked under the WCI programme, allow participants to use offsets to meet up to 8% of their compliance obligations.

GOLDEN CCOS

Meanwhile, a batch of 306,517 California Carbon Offsets (CCOs) exited their invalidation period, making them so-called ‘golden’ and increasing their value in the state’s emissions market.

The 2012-vintage CCOs were issued to an ODS project in Sep. 2013, and had a three-year invalidation period starting a year earlier.

According to data published by the state’s Air Resources Board (ARB), the credits finished their invalidation period this week, making them the first CCOs to achieve this distinction.

They are likely still in circulation.

Standard CCOs eligible for California’s carbon market are able to be declared ineligible by the regulator for up to eight years after they have been issued, presenting a large degree of regulatory risk for investors and market participants.

The state’s first invalidation occurred in November 2014 when 88,955 ODS CCOs generated at the Arkansas-based Clean Harbors Incineration Facility were nullified for regulatory violations unrelated to the offsets themselves.

The project’s developer was San Francisco-based EOS Climate, but ARB decided to invoke the so-called buyers’ liability provisions.

The event was a major distraction for California ETS participants last year, with the effects still being felt this year through reduced liquidity and investment in the offset market, which has created a sizeable CCO deficit.

In the market’s second trading period (2015-2017), CCO demand is forecast to be up to 92 million units, compared to the 24.5 million offsets issued to date.

As a result of this and the risk of invalidation, few companies are expected to exhaust their 8% CCO usage limits.

PREMIUM

Developers can opt to shorten the invalidation period to three years from eight by paying for a second verification of the credits by a different auditor.

Golden CCOs fetch the highest premium in the market, while those with three-year invalidation periods are worth more than those with eight.

According to broker data from CaliforniaCarbon.info, golden 2015-vintage (V2015) CCOs were valued at around $11.76, compared to V2015s with three-year invalidation risk at $11.22 and V2015s with eight-year invalidation risk at $10.58.

All were priced below V2015 California Carbon Allowances for delivery in December, which are currently priced at around $12.84.

NEW ISSUANCES

ARB has handed out a further 680,000 CCOs in the past fortnight, including 450,000 to a new forest conservation project, data published on Wednesday showed.

Of that amount, 86,580 offsets or around 19% were deposited into a forest buffer account, which provides insurance against reversals of GHG reductions due to unintentional causes, for example forest fires, pest infestations, or disease outbreaks.

A further 49,621 CCOs were granted to a livestock biogas project owned by Camco International Group, and 25,000 issued to another EOS Climate ODS project at the Clean Harbors facility, the data showed.

By Mike Szabo and Ben Garside – mike@carbon-pulse.com

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