Transcript Slide 1
California Offsets Workshop
Current State of the California
Carbon Market
June 21, 2011
Josh Margolis
[email protected]
415-296-9359
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© Copyright CantorCO2e 2011
Agenda
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Who are these guys?
Litigation
Market mechanics
Market size
Allowances & offsets
Transaction types
Market color
Actions to take now
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CantorCO2e
Sound and Fury signifying?
what, when, how
$3 - $128 billion
$6 - $70
spot, stream, options, hedge
its complicated
assess, prepare, hedge
Who is CantorCO2e?
California roots
o
o
o
Since 1992 (and before)
Most credits brokered
CEC Climate Change Advisory Committee
Auction agreements with >300 companies
Los Angeles
San Francisco
Brokerage, strategy, advisory, marketing, and regulatory assistance
Subsidiary of Cantor Fitzgerald, global financial services firm
Environment
> $10 billion environmental & energy transactions
o
o
o
o
o
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CARB CRTs & CAs
GHG VERs
RGGI
CERs
VCUs
SO2 EAs
RECLAIM
RECs/ROCS
EU EAs
ATUs
NOx SIP Call
HGA
Biomass
Wastewater
ERC
DERs
VERs
Helping companies develop and implement
successful offset/carbon management strategies
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Markets
Compliance
Voluntary
Energy
Innovation
Renewables
Finance
Securitization
Technology
Litigation from
Market’s Perspective
• Key dates
• Roller coaster
–
–
–
–
–
What’s EJ got to do with it?
it’s all over/we agree with them?
just show your homework
the sun’s coming up tomorrow
the other shoe
• Betting on:
– program what’s creditable
– start date
next lawsuit
• Just give me certainty
• Pricing uncertainty
• Prohibition on speculation
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*
Potential Value of Traded Credits
Allowances
2,700,000,000
Auction
Amt Auctioned (est)
Low (est)
5%
High (est)
60%
Offsets
Low (est)
High (est)
Unit Price
(est)
$10
$70
Total Value
$1,350,000,000
$113,400,000,000
216,000,000
Total Value
$2,160,000,000
$15,120,000,000
Unit Price (est)
Times Sold
$10
1
$70
4
Total Est Value of Allowances & Offsets
Low
High
$3,510,000,000
$128,520,000,000
* Excludes value of freely allocated emission allowances
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AB 32: Cap vs. Allocations + Offsets
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2
3
Million Metric Tonnes
450
400
350
300
250
200
150
100
50
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
Net Cap
Offset forecast
The amount of allowances that CARB will remove from each year’s cap and set aside for the Allowance price Containment Reserve
• BAU emissions forecast
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Declining
Emissions Checkbook
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Single Year Trade
400
300
Buys 100 allowances
from seller
Sells 100 allowances
to buyer
200
Seller
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Buyer
Multiple Year Trade
300
Required obligation
250
Surplus saleable
reduction
200
150
100
50
2012
2013
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2014
2015
2016
2018
2019
2020
Actual
emissions
Transaction Types
Spot
Stream
Swaps
Options
Firm delivery
Unit contingent
Guaranteed CARB
Offsets
Allowances
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Transaction Types
Spot Transaction
o Verified, issued offsets or allowances
• Pros:
POD, low quantity/delivery risk,
seamless transaction
• Cons:
Some buyers looking for future vintages
Stream Transaction
o Multiple years of created, prospective offsets/EAs
• Pros:
Lock in future year price, establish cash
flow/cost
• Cons:
Locked price eliminates ability to
transact at better price
• Hedge:
Structure a floor/ceiling profit share
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Transaction Types
Firm Delivery
o Supplier guarantees delivery at set date/price
• Pros
Higher price
• Cons
Penalties for non-delivery, credit?
Unit Contingent
o Delivery of credits when/if issued
• Pros
No non-delivery penalty if not issued
• Cons
Likely to be priced lower
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Transaction Types
Swaps
o Non cash transaction
Options
o Risk management
o Right, not obligation
• Calls right to buy at set level over set term
• Puts right to sell at set level over set term
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Transaction Types
Guaranteed CARB Offset or Allowance
Terms
Program in force
Dec 12, 13, 14 (one year delay?)
Allowances/offsets issued/blessed by
CARB
Issues
Credit
Policy/legal
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Offsets
216 MMTCO2e through 2020 limit
8% of compliance obligation
Location – CA, North America… for now
ARB Protocols
o Forestry protocol v 2.1, 3.0-3.2
o urban forests protocol v 1.0-1.1
o US ODS protocol v 1.0
o Livestock manure protocol v 1-3
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Potential Offsets
What’s next (maybe?)
CAR Ag
o Cropland Management
o Nutrient Management
o Rice Cultivation
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VCS REDD
CAR Nitric Acid
CAR Mexico Livestock
LFG?
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Allowances vs Offsets
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Allowances
Offsets
Available from CARB
Yes
No
Third Party Market
Yes*
Yes
Available Outside Auctions
Limited
Yes
Holding Limit
Yes
No
Price Limit
No
No
Forward Buys
Yes*
Yes
Charismatic (Carbon with a Story)
No
Yes
Risk of Reversal
No*
Yes
Due Diligence Importance
Limited
Very
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Price Indications
Recent Bid/Ask for Carbon Instruments (6/20/11)
Product
Type
Quantity
Vintage
Bid/Ask
CAR
Forestry 2.1
25,000
spot
6.50/7.25
CAR
Forestry 3.1
25,000
2005-12
6.75/7.50
CAR – Dom
ODS - Domestic
25,000
2010-2011
7.75/8.50
CAR
Ag Methane
20,000
2010-13
7.25 /7.50
CAR
ODS – Article V
25,000
>2005
2.50/4.00
CAR
N2O
100,000
>2005
2.00/3.50
CCO
Offset
25,000
-
10.50/11.50
CCA Forward DEC-12
Allowance
25,000
-
14.75/16.00
CCA Forward DEC-13
Allowance
25,000
-
15.75/16.50
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Price Indications
Source: Reuters graph ic/Stephen Culp via Point Carbon
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Price Indications
Indicative Price Trend for CARB-Approved CAR Project Types and
CARB Carbon Allowance
$16.00
$14.00
Settlement Price
$12.00
$10.00
Livestock
ODS
$8.00
$6.00
$4.00
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Forestry
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DEC-12 CCA
Market Color
•
•
Herky jerkey
Traders mostly, fewer permit holders now
– Depth of market - > millions of tons
– Traders, permit holders with trading desks, compliance sources
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•
Mostly OTC, for now
CARB’s green curtain
– Rules
– Methodologies/prospective
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Forecast
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Offset re-verification
Policy (go/no go, start date, allocations, trading rules, buyer beware)
Speculation
Credit (offered/taken)
Control, manufacturing, allocation/offset planning
Cost curves – capital costs vs. offsets and allowances vs. hybrid
Options
Portfolio
Remember CEQA/Voluntary
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Know Who You are Talking To
Motivations, products, and costs between:
Brokers
Traders
Marketers
Retail offset provider
Exchanges
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Actions to Take Now
Appreciate policy challenges/opportunities
Quantify current and expected 12 – 20 emissions
AB32, CEQA, voluntary
Build portfolio of solutions
o Onsite controls, efficiency improvements, biomass
o Identify control cost curve
o Managing carbon liabilities
Create CARB offsets if possible
Define and resolve expected net short position
o Participate in 3rd party projects
o Offset due diligence (reversals, delivery, PR risk)
OTC Transactions
o Price and terms
o Swap (ERC, RTC for carbon)
o Trade clearing
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Thank You
Josh Margolis
CEO
415.296.9359
[email protected]
www.emissionstrading.com
© Copyright CantorCO2e 2011