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California’s First Carbon Auction Generates Nearly $300 Million in Revenues

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California recently held its first auction for carbon allowances, the launch of the cap-and-trade program that is part of its Global Warming Solutions Act (AB32). My colleague, Jasmin Ansar, offered some early commentary on the auction and I recently circled back with her to get an update on how it went.

The following commentary is from UCS Western States Climate Economist Jasmin Ansar:

AB1532, GHG emissionsCalifornia’s first carbon auction went off without a hitch. News reports show that investors and regulators appeared pleased with the outcome of California’s first auction of carbon allowances, and both groups expressed confidence that the newly created cap-and-trade market would significantly reduce future carbon pollution, helping California attain its AB 32 emission goals.

Auction results

The results of the auction announced by the California Air Resources Board showed that all ‘current’ 2013 allowances, totaling 23.1 million tons, were sold at a price of $10.09, nine cents above the regulator’s minimum (reserve) price of $10 per ton. In addition, about 14 percent of the advance 2015 allowances were sold for $10 per ton. The buyers in the auction were primarily major polluters who will need to pay for their carbon emissions starting in 2013.

The broader public should also be sanguine about the auction results. There was no evidence of any market impropriety, and bidding was brisk for the current auction, with bid volume being three times greater than the volume for sale.

One slightly puzzling result did emerge. The current auction had a much larger bid volume than did the advance auction, where only 5.5 million out of 39.5 million available 2015 allowances were sold. This could mean that companies are waiting to buy these 2015 allowances closer to the compliance date, or possibly, that companies are planning to ramp up new programs to abate future emissions and expect these programs to be more profitable than investments in carbon allowances.

Future auctions

The successful completion of this first auction bodes well for future quarterly auctions starting in 2013. The first auction in 2013 is scheduled for February 19, 2013. We can expect more market activity to occur at the end of compliance periods, in 2015, 2018, and 2021, as companies will then face stiff penalties if assigned emission permits have not been surrendered.

 

Posted in: Fossil Fuels, Global Warming Tags: , , ,

About the author: Rachel Cleetus is an expert on the design and economic evaluation of climate and energy policies, as well as the costs of climate change. She holds a Ph.D. in economics. See Rachel's full bio.

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  • priscilla
    • http://www.ucsusa.org/news/experts/rachel-cleetus.html Rachel Cleetus

      Reply from Jasmin Ansar:

      Dear Priscilla,
      Thank you for sending the link to the interesting article, ‘Should Chiapas farmers pay for California’s emissions’. The article raises very important issues of social equity and justice and the emissions reduction integrity of an adopted REDD (Reducing Emissions from Deforestation and forest Degradation) offset program. As the article notes the Governor’s Climate and Forest Task Force (GCF) is currently in the process of developing protocols for these potential offsets.
      There are many issues to be addressed before finalization of such protocols as is outlined in the Greenpeace report ‘Outsourcing Hot Air: the push for sub-national REDD offsets in California’s carbon markets from Mexico and beyond’, September 2012.
      http://www.greenpeace.org/international/outsourcing-hot-air/
      It will indeed be imperative for California to make sure that the protocols once adopted do indeed produce real emissions reductions and that they satisfy the needs and rights of the local communities.

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