The base case scenario of our updated price forecast maintains the assumption that Supply Option 1 of the California Air Resources Board (CARB) will be adopted. However, it now assumes California will not be able to enforce its ban on sales of vehicles with an internal combustion engine (ICE) from 2035. Taking into consideration the current delays in CARB’s regulatory reform process, we now assume the new supply caps take effect from 2027 rather than from 2026. Despite the new scenario’s higher demand from the slower rate of decarbonization in the transportation sector resulting from the new barriers to electric vehicle (EV) adoption, the additional allowance supply from delays in the reform process reduces our forecasted 2030 allowance price by 8%.
This quarterly price forecast update represents Veyt’s CCA allowance price trajectory out to 2045 based on our view on supply (availability of allowances) and demand (GHG emissions covered under the California-Quebec joint program). Since the last update, we have adjusted our base case scenario, pushed back California’s proposed supply scenarios by one year, removed certain federal EV subsides, and adjusted transportation fuel carbon intensity (CI) benchmarks to reflect the new targets set out in the updated regulation for California’s Low Carbon Fuel Standard (LCFS) program.
On 12 June, President Donald Trump signed into law a joint resolution that nullifies the waivers that grant California the ability to implement stricter vehicle emission standards than those required by the federal Environmental Protection Agency’s (EPA). The waivers have allowed California to implement a ban on ICE vehicle sales from 2035 and establish annual EV sales targets that reach 100% by 2035. Although the resolution is currently being challenged by the state’s Attorney General (AG), our base case scenario from Supply Option 1 now assumes California can no longer enforce its EV sales mandates and is therefore changed to Supply Option 1: Unsuccessful policy adherence.
In addition to blocking California’s ICE vehicle ban, President Trump’s “Big Beautiful Bill” – which passed the US House of Representatives on 3 July and will thus be made law – removes federal subsidies for EVs. We have thus adjusted the CAPEX costs of EVs, plug-in hybrid electric vehicle (PHEVs), and fuel cell electric vehicles (FCEV) in our model to no longer include these subsidies from 2026. Although state tax incentives and subsidies for EVs will remain in place, purchasing an EV will be more expensive. This will slow the rate at which EVs are adopted and therefore the rate at which the transportation sector of the ETS decarbonizes.
Given the delays in CARB’s process to update its cap-and-trade program, our model no longer assumes the new tighter allowance supply budget can be implemented by 2026. Veyt’s analysis of the different regulatory proceedings and administrative deadlines involved in the draft regulation becoming law concludes that the new supply caps will likely take effect from 2027. In our model we have therefore kept the current (higher) allowance supply for 2026. We have maintained the 2030-2045 supply targets, as outlined in CARB’s last workshop, and have adjusted the 2027 – 2029 budgets to a linear reduction from 2026 to the 2030 target.
Although the latest iterations of the California 2025 – 2026 fiscal budget no longer include cap-and-trade extension language, our model considers the ample time the state legislature has to extend the program and maintains the assumption that it will continue through 2045.
On 27 June, CARB announced that California’s Office of Administrative Law (OAL) approved changes to the updated LCFS regulation which then took effect from 1 July. Our model has adjusted the CI benchmarks to match the new regulation – particularly the 9% increase in the 2025 reduction target (which now stands at 22.7%).
Despite slower emission reductions in the transportation sector, the additional supply of allowances in the market from a one-year delay in the tighter allowance budgets result in lower forecasted prices in all four scenarios. In the Supply Option 1: Unsuccessful policy adherence (base case) scenario, the CCA allowance price now averages USD 81/t in 2030 – down 8% from our last update. In the long term, allowance prices reach USD 121/t in 2035 and USD 246/t by 2045 – down 7% and 12% from the previous update, respectively. Although our forecast shows the price to average USD 55/t in 2025, we believe that the actual price might end up lower, as our model does not incorporate the political and regulatory uncertainty that is currently priced into the CCA allowance.
In our Supply Option 2: unsuccessful policy adherence scenario, allowance prices remain higher than the base case in the short term – reaching USD 87/t in 2030 (down 5% from our previous update). Allowance prices then begin to converge with the base case, reaching USD 121/t in 2035 and USD 260/t in 2045 – down 3% and 4% from the previous update, respectively.
Veyt has maintained the two scenarios in which California is able to achieve its 100% EV sales target for 2035: the lawsuit against congressional blocking of the EPA waivers may succeed, or the state may be able to implement enough economic and regulatory support to maintain the same EV uptake rate as originally intended. In either case, however, having a higher allowance supply through 2026 rather than only through the end of 2025 pushes down allowance prices in both supply scenarios. For Supply Option 1, the CCA allowance price will average USD 39/t in 2030 – down 7% from the previous update. The allowance price reaches USD 58/t in 2035 and USD 108/t in 2045 – down 5% and 2%, respectively. In Supply Option 2, CCA prices average USD 42/t in 2030 and 58/t by 2035 – down 12% and 10%, respectively. In the longer term, allowance prices increase 6% from the last update, averaging USD 112/t in 2045.
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