SAN FRANCISCO Feb 22 California's largest
greenhouse gas-emitting businesses paid $13.62 per metric tonne
(1.1 tons) for the right to release carbon, narrowly beating
market expectations in the state's second carbon permit auction.
At the state-run auction, California managed to sell all of
the nearly 13 million carbon permits it offered to cover
emissions for this year and less than half of the roughly 9.6
million permits it offered to cover 2016 emissions, the
California Air Resources Board (ARB) said on Friday.
Allowances to cover 2016 emissions cleared the auction at
the lowest allowable price under the program's rules, $10.71 per
tonne amid weak demand, the ARB said.
The quarterly allowance auctions are a critical component of
the state's cap-and-trade program, the first of its kind in the
United States. It uses market mechanisms to reward companies
that figure out ways to reduce pollution below levels set by the
government, and serves as the backbone of California's effort to
cut emissions back to 1990 levels by 2020.
California hopes its climate change program will serve as a
model for other states and the federal government.
Environmentalists and market participants hailed the auction
results as a success.
"Today's results represent another successful chapter in
California's story of cutting pollution and moving towards a
clean energy economy," said Derek Walker, an associate vice
president at the Environmental Defense Fund.
"The results also demonstrate that this is a strong, viable
carbon market," he said.
Jeff King, managing director of environmental markets for
Scotiabank, also hailed the results, noting that the clearing
price was more closely correlated with the secondary market
price for allowances than it was at the program's inaugural
auction in November.
King said that strong demand for the 2013 vintage allowances
was a sign that the new market is developing well.
"The 2.47 times subscription rate is a bullish indicator for
future auctions," he said.
At the first auction, demand only barely outstripped supply.
Emilie Mazzacurati, managing director of climate consulting
and research firm Four Twenty Seven, said she expects
participation to grow again at the next auction, which is
scheduled for May 16.
"I think a number of compliance entities that had waited out
the first auction have now jumped on the bandwagon and that the
financial sector is taking more of an interest in the market."
Banks and other financial institutions upped their
participation at this auction, purchasing almost 12 percent of
the current year allowances offered, up from about 3 percent in
The sale of permits raised about $84 million for the state,
an ARB spokesman said, money that will deposited into a new
state-run greenhouse gas reduction account.
That money will be added to the nearly $54 million it raised
from the sale of allowances at the November auction.
California regulators are currently weighing how to allocate
those funds and are holding a series of forums around the state
to receive input from the public on how it should be spent.
The next public workshops are scheduled to take place in
Sacramento on Monday and in Los Angeles on Wednesday.
California Governor Jerry Brown is expected to release his
plan for spending the revenue to the legislature in May, the ARB
But not everyone agrees that California should be raising
money from the sale of carbon allowances.
In November, the California Chamber of Commerce sued the
ARB, claiming it lacked the legal right to raise revenue through
The state's largest business group said the carbon permits
should be handed out to businesses freely.
Last week, the National Association of Manufacturers, the
nation's largest manufacturing trade group, said it would join
the lawsuit on the side of the California Chamber of Commerce.
Environmental organizations including the EDF and the
Natural Resources Defense Council have intervened in the suit on
the side of the state, saying the auctions are necessary to
price carbon correctly and raise revenue to support clean
A hearing in Superior Court in Sacramento County is
scheduled for May 31.