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The recent auction on the Washington cap-and-invest market has produced remarkable statistics, raising eyebrows and generating anticipation for future events. The latest auction concluded with a surprising settlement price of $56.01 metric tonnes of carbon dioxide equivalent. This significant price difference has led to an upcoming Allowance Price Containment Reserve (APCR) Auction on 9th August.
Mount Rainier National Park, Washington.
Market participants, witnessing the current auction's high clearing price and the secondary market trading around $58, believe that the APCR Tier 1 will soon exhaust, leading to a shift towards APCR Tier 2. There is a 50% probability that the upcoming APCR Auction will clear at the Tier 2 price. As a result, an expectation of over 9 million APCR allowances entering the market arises, as the auction will offer nearly 9.3 million allowances at each Tier. This influx of allowances is anticipated to lower prices temporarily.
The conclusion drawn is that compliance entities are in a hurry to purchase allowances and build internal banks, fearing a significant rise in the price of Washington Carbon Allowances (WCA). Consequently, compliance entities are bidding significantly higher.
The Washington Cap-and-Invest Programme has emerged as the highest carbon price setter in North America. With no surplus bank and a substantial 7% decline, it establishes itself as a very dynamic carbon mechanism. Launched in January 2023, it is the second economy-wide Cap-and-Invest programme in the United States, following the California programme. Washington's programme and the state's Low Carbon Fuel Standard aim to achieve cost-efficient pathways to lower carbon emissions and fulfil the state's target of reducing GHG emissions by 95% by 2050.
The Department of Ecology of the State of Washington swiftly implemented the programme within two years of the passage of the Climate Commitment Act in 2021. The programme requires businesses emitting over 25,000 metric tonnes of carbon annually to pay for each metric ton emitted. Washington now joins 14 other states with similar programmes that set declining caps on emissions. The estimated annual revenue from the cap-and-invest programme is $1 billion, mostly allocated to environment-related initiatives. Companies failing to comply will face fines of $50,000 per violation per day.
In conclusion, the emergence of booming and well-regulated carbon markets holds immense significance for the prosperity and restoration efforts of nature through nature-based solutions. DGB Group, as a company actively engaged in producing carbon credits through nature-based solutions, this development presents tremendous opportunities.
It is through these markets that we can foster economic growth, protect biodiversity, and create a brighter and more prosperous future for nature and humanity. Together, let us seize the opportunities presented by carbon markets to drive positive change and secure a sustainable planet for generations to come.
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