Changes to APCR Allowance Schedule
The Washington Department of Ecology is issuing this notice to inform you of changes in the Allowance Price Containment Reserve (APCR) allowance schedule effective for the remainder of the 2023-2026 compliance period.
These changes are intended to provide additional cost containment for entities required to participate in the cap-and-invest program by ensuring that sufficient allowances are available at a sustainable cost to allow those entities to meet their compliance obligations.
The changes, detailed below, are consistent with the approach used in the November 2023 APCR auction.
In November, Department of Ecology Director Laura Watson announced a preliminary decision to seek a linkage agreement between Washington’s cap-and-invest program and the existing joint market between California and Quebec, subject to the requirements set in Washington’s Climate Commitment Act. Because such a linkage agreement is designed to increase the total pool of allowances available, the APCR schedule described in this bulletin will be effective only unless and until a linkage agreement is signed.
What is the APCR?
The Allowance Price Containment Reserve, or APCR, is a separate pool of allowances that can be released into the market when increased demand at a quarterly auction pushes prices above a pre-defined trigger price set in rule. This mechanism is designed to ensure businesses can obtain the allowances they need at sustainable, pre-determined prices.
APCR auctions are open only to businesses that are required to obtain allowances to cover their emissions under Washington’s cap-and-invest program. These auctions are not open to investors or other entities without a compliance obligation.
APCR Update – auction supply guidance for 2023 – 2026
This notice provides guidance on APCR auctions from 2023 through 2026. Ecology is providing this guidance to clarify market rules in advance of the fourth 2023 quarterly auction scheduled for Dec. 6, 2023:
- Ecology will make the full APCR allowance supply available over the course of the first compliance period.
- The majority of APCR allowances will be made available in 2023 and 2024, provided allowance prices at quarterly auctions reach the specified trigger price. A small number of APCR allowances will be retained until 2026 to ensure APCR allowance availability prior to the compliance events held in 2025 and 2026.
- All APCR allowances will be offered at the lower Tier 1 price, per WAC 173-446-370, unless and until Ecology completes a linkage agreement to connect Washington’s cap-and-invest program with the joint market for California and Quebec’s carbon programs.
When does an APCR auction occur?
APCR auctions occur:
- When a quarterly auction settles above the Tier 1 price. For 2023, that trigger price is $51.90,
- If the Emissions Containment Reserve - a separate pool of allowances dedicated for new covered businesses entering the market for the first time - is fully exhausted,
- Once prior to the 2024 compliance event, and prior to each annual compliance event thereafter.
How many allowances will be offered?
The number of allowances offered at each auction is determined based upon the number of allowances left in each year’s designated APCR budget according to the following annual schedule:
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APCR Annual Schedule
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2023
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2024
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2025
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2026
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8 million
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7 million
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3 million
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~700,000
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The number of allowances offered will be equal to the remainer of the APCR budget for that year divided by the number of potential APCR auctions left in that year. If there are APCR allowances left over from the previous year, those will also be included in the budget.
All allowances will be offered at the Tier 1 price for that year, unless and until a linkage agreement has been signed.
What has changed?
Prior to the first APCR auction conducted in August 2023, Ecology announced that half of the allowances in each auction would be introduced at Tier 1, and half at Tier 2. Ecology also published a schedule of allowance supply from 2023 through 2026. Prior to the second APCR auction, conducted in November 2023, Ecology announced that it would increase the number of allowances available, and make all of those allowances available at the Tier 1 price.
Relative to the ‘partial frontloading’ method announced prior to the first APCR auction that spread APCR auction supply across the first compliance period (8 million allowances for 2023, 6 million in 2024, 3 million in 2025 and 1.7 million in 2026), this schedule provides an additional 1 million APCR allowances in 2024. This shift will continue to provide cost containment through the APCR, although it will reduce the potential 2026 APCR auction supply from 1.7 million to 700,000 allowances.
The updated schedule is consistent with the approach taken in the November APCR auction: Ecology will offer allowances all at Tier 1, unless and until a linkage agreement is signed.
What do these changes mean if an APCR auction is triggered by the 4th quarterly auction? What about APCR auctions in 2024?
Ecology will hold its fourth and final quarterly allowance auction of 2023 on Dec. 6, 2023. If the settlement price reached is above the APCR trigger price, Ecology will hold the resulting APCR auction in February 2024 and make 1.9 million allowances available. This represents the total potential 2023 APCR allowance supply (above), reduced by the number of allowances sold at prior APCR auctions held in 2023. All of the allowances would be available at $51.90, the 2023 Tier 1 price.
If an APCR auction is triggered by the settlement price of any one of the four quarterly allowance auctions held in 2024, the number of APCR allowances offered would be equal to the total number of APCR allowances offered in that year—including APCR allowances not sold in prior APCR auctions—divided by the number of potential APCR auctions remaining in the year. Unless and until a linkage agreement is signed, the full quantity of APCR allowances would continue to be offered at the Tier 1 price.
For more information about the APCR or how to apply to participate in auctions, visit Ecology’s Auctions and Market and Trainings and Resources pages.
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