On 19 September, California Governor Gavin Newsom signed into law Assembly Bill 1207, which formally extends the state’s emission trading system through 2045. The program is designed to help the state achieve its long-term climate change mitigation targets: cutting greenhouse gas emissions 40% from 1990 levels by 2030 and achieving net zero by 2045.
California’s program and that of the Canadian province of Quebec together comprise the world’s second largest carbon market by volume, the Western Climate Initiative (WCI). Allowances in this market, known as California Carbon Allowances (CCAs) currently trade at USD 31/t.
Veyt forecasts prices to hit USD 87/ton in 2030 and USD 230/ton in 2045 on the back of the program’s extension – and the incorporation of the new way of structuring offsets that makes for tighter emission caps in the long run.
“As the federal government works to block EV mandates and remove climate subsidies while California doubles down on its climate ambitions, conditions couldn’t be more bullish for the carbon price.” – Luke Sideropoulos, North American Carbon Analyst
In addition to extending the cap-and-invest program through 2045, the assembly bill introduces a new method for incorporating carbon offset credits. Previously, entities could offset a small percentage of their emissions in a given year by buying credits – at least half of those must come from projects deemed to directly benefit California’s economy. The revised rules specify that offset use will tighten the program’s emission cap by the number of credits retired, reducing supply in the following year.
“The extension of the carbon market alongside the new offset provisions instills confidence back into the market, after a prolonged period of uncertainty pushed allowance prices to near three-year lows” – Luke Sideropoulos, North American Carbon Analyst
Considering that the California Air Resources Board (CARB) must distribute 2026 allocation supply in October, our forecasting model assumes the new provisions will take effect from 2027.
“A tighter cap from the new offset provisions, will push allowance prices to USD 90/ton levels by 2030 – 8% higher than previously forecasted” – Luke Sideropoulos, North American Carbon Analyst
For any enquiries, please contact Luke Sideropoulos (luke.sideropoulos@veyt.com).
