| SAN FRANCISCO
SAN FRANCISCO May 15 California's benchmark
carbon contract slipped 8 cents from its close one day earlier
to settle at $11.73 a tonne on Thursday as traders positioned
themselves ahead of Friday's state-run allowance auction, where
permits are expected to clear near the floor price.
The state will offer about 17 million allowances covering
emissions this year and 9.2 million allowances covering
emissions in 2017 at the auction, the cap-and-trade program's
The program requires that the permits sell for no less than
$11.34 a tonne. Carbon dealers on Thursday said they don't
expect the permits to fetch much more than that.
"I expect a very boring auction that clears within 25 cents
of the market," one trader said Thursday.
A broker said he expects the current year allowances to
clear at $11.49 a tonne, one cent higher than they went for at
the previous sale in February.
The auction results will be made public on Wednesday.
Demand for carbon allowances in the secondary market has
been weak for the past three months on the belief that the
market is oversupplied with permits.
The lack of liquidity has frustrated market participants
hoping to turn a profit by facilitating transactions in the
nearly 18-month-old market.
"This soft take-off of the market is to be expected," said
one new market entrant. "It just requires patience for new firms
Trading could pick up next year when the program expands to
include distributors of natural gas, including Pacific Gas &
Electric and Southern California Gas & Electric
, a second trader said.
Distributors of transportation fuels will also come under
the program's cap next year. They are expected to pass the cost
of carbon allowances onto drivers at the pump.
The second trader said it's also possible that some
industrials in the state have not yet purchased allowances and
may jump into the market between now and November, when
businesses will for the first time be required to submit
allowances to cover their emissions.
The market might also get a boost when the state announces
its much anticipated midterm emissions target, which will give
participants an idea of how aggressively the state plans to cut
its output of heat-trapping greenhouse gases between 2020 and
That announcement isn't expected to come out until the end
of this year or early next, according to a spokesman at the
California Air Resources Board, which oversees the California
(Reporting by Rory Carroll; Editing by Eric Walsh)