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Changes in CATS prices over the past three months

The carbon market has been volatile for most of 2022 to date. This volatility is reflected in the secondary market prices over the past three months. When the results of the last two auctions were announced, one emission unit traded at USD 31.43 (CAD 40.20) on May 26, 2022, and USD 28.35 (CAD 36.81) on August 24, 2022, a decrease of 10%.

However, the value of emission units rose steadily in May and through most of June 2022, reaching a high of USD 32.70 (CAD 41.33) on June 1, 2022. That said, significant financial market fluctuations led to the liquidation of a portion of the emission units held by financial actors, resulting in a decrease in the value of these units by 11% in June and 7% in July 2022.

A brief increase in prices was more recently observed in early August following a recovery in financial markets and regulatory announcements, such as that of the Governor of California calling for the state’s greenhouse gas reduction ambitions to be raised, or the U.S. Inflation Reduction Act (“IRA”).

In direct response to the results of the August 24, 2022 auction, where the final price of current-year emission units was below the secondary market price (USD 27.00 vs. USD 30.40), the market price quickly declined to below USD 27.00 as at August 31, 2022. As of September 20, one emission unit traded for USD 26.75 (CAD 35.70).

February 2022 auction results

The third auction of 2022 was held on August 17, 2022. The final selling price of the current vintage emission units was set at USD 27.00 (CAD 34.74), while the price of the future vintage emission units was set at USD 30.00 (CAD 38.60). The ratio of accepted offers to the number of units sold at the time of the sale was 129% for current vintages and 251% for future ones. These ratios indicate relatively strong market demand for emission allowances, particularly for future vintages.

Publication: draft regulations amending CATS regulation

Following a public comment period, the Regulation amending the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances (RCATS) was published on August 17, 2022, in the Gazette officielle du Québec.

These regulations set out new rules governing the free allocation of greenhouse gas (GHG) emission units paid to certain companies regulated by the carbon market for the period 2024 to 2030 in order to meet Quebec’s 2030 reduction targets.

Under this new regulation, there will be a gradual reduction in the free allocation of emission units for large industrial companies and a deposit, on their behalf, of income from the sale of a portion of the reduced units to finance their transition to lower carbon energy consumption.

The new free allowance rules will come into effect on January 1, 2024. The terms and conditions related to the use of money from the deposit and other changes to the operation of the CATS came into effect on September 1, 2022.