By Rory Carroll
Aug 21 California's largest greenhouse
gas-emitting businesses paid $12.22 per metric tonne (1.1 tons)
for the right to release carbon this year, lower than expected
and down almost 13 percent from the previous sale in May, the
state said on Wednesday.
Oil refineries, utilities and market speculators were among
those that purchased all 13.87 million current year permits
offered at the state's fourth quarterly auction, according to
the program's regulator, the California Air Resources Board.
For the first time, the state also sold all future-year
permits it put up for sale. All 9.56 million allowances it
offered to cover emissions in 2016 sold for $11.10 each at the
auction, which was held on Aug. 16.
At each auction, the state offers current year allowances as
well as permits that cover emissions in future years, so
facilities can bank for future needs and plan ahead.
The weak clearing price for current year permits sent the
price of California carbon allowance (CCA) futures for December
2013 delivery down 7 percent on the contract's primary exchange.
"The result of $12.22 was lower than we expected," one
trader said. "The market is trading $12.50 on the screen right
now," he said.
The clearing price may have been softer due to news that the
state was planning to give manufacturers and natural gas
suppliers more free allowances to ease the burden of complying
with the program, the trader said.
The price of CCAs covering 2016 emissions were trading in
near parity with current year allowances after several trades
were seen for $12.50 each.
LONG TERM OUTLOOK
Emily Reyna of the Environmental Defense Fund (EDF) said the
results were a "decisively positive" sign for the nascent
"With complete sale of current allowances, diverse bidder
participation and stable clearing price, the health and staying
power of the carbon market is clear," she said in a blog post.
She said the lower price for current year allowances
suggests that companies believe they will have lower than
expected costs in complying with the program.
EDF's Tim O'Connor said the fact that the state sold all of
the 2016 allowances it offered was a vote of confidence in the
long-term prospects of the program.
He said most of the 2016 allowances were purchased by
regulated businesses, not speculators.
California's cap-and-trade program is a part of its broader
effort to roll its output of heat-trapping greenhouse gases back
to 1990 levels by 2020. The state is currently deciding whether
to extend the program beyond 2020.
The four auctions have raised nearly $396 million for the
state so far, money Governor Jerry Brown has said will be loaned
to the California legislature to plug gaps in the state budget.
The money is supposed to be repaid in the future into a
state-run account to further reduce greenhouse-gas emissions.
The state's three largest utility companies, Pacific Gas &
Electric, Southern California Edison and San
Diego Gas & Electric, have so far raised more than $626
million from sale of allowances consigned to them by the state.
They are required to use the revenue to protect ratepayers
from higher energy bills.
$1 BILLION MARKET
Wednesday's results pushed the value of the market past $1
billion, said Ashley Lawson, a senior analyst with Thomson
Reuters Point Carbon.
The calculation was made by adding up the total amount of
money spent on allowances up to this point, she said.
"It's like getting your driver's license: it's a major
milestone, but there could still be bumpy roads ahead," she
Businesses have sued over the auctions, saying the state
does not have the legal authority to sell permits or collect
revenue from the program. The plaintiffs include the California
Chamber of Commerce, the state's largest business group. They
want the state to give the permits freely to companies covered.
A court hearing on the lawsuits is scheduled to take place
in Sacramento next week.