February 25, 2015 / 8:32 PM / 5 years ago

UPDATE 2-California carbon permits fetch $12.21 a tonne at auction

(Adds market reaction, background on program’s expansion)

By Rory Carroll

SAN FRANCISCO, Feb 25 (Reuters) - California said on Wednesday that carbon allowances fetched $12.21 a tonne at the cap-and-trade program’s first auction of the year, a rate below market expectations even though all of the permits offered were sold.

The auction was the first since the two-year-old cap-and-trade program expanded to cover distributors of transportation and home heating fuels on Jan. 1, roughly doubling the market’s size.

The state sold all 73.6 million permits offered to cover 2015 emissions and 10.4 million allowances offered to cover emissions in 2018.

The 2018 permits fetched $12.10 a tonne, the minimum price allowed under the auction’s rules.

California’s cap-and-trade program is a key component of its effort to cut its output of heat-trapping greenhouse gases to 1990 levels by 2020.

California carbon allowance futures traded lower immediately after the results were released, traders said.

The benchmark 2015 contract for March delivery was trading at $12.35 a tonne on the IntercontinentalExchange (ICE) following the announcement, down 30 cents from Tuesday’s close with about 700,000 allowances changing hands on ICE, traders said.

Trading of allowances on the secondary market had been sluggish in the runup to the auction, which was held on Feb. 18.

The auction was the program’s 10th overall and its second with new carbon trading partner Quebec. It was also the single largest because of its expansion to cover distributors of transportation fuels such as gasoline and diesel.

Oil companies have warned that including those fuels in the program, which already covers emissions from state’s oil refineries, would raise prices at the pump. Environmentalists counter that doing so is necessary to meet the state’s climate goals and to break its reliance on fossil fuels.

Although the state won’t disclose which companies purchased allowances at the auction, its list of qualified bidders included oil giants Chevron U.S.A., Inc, BP Energy Company and Exxon Mobil Corp. as well as mining company Rio Tinto Minerals Inc and utility company Pacific Gas and Electric.

Previous auctions have raised over $969 million for the state, which it plans to invest in energy efficiency and clean energy programs as well as in its high-speed rail project.

California won’t know how much money was raised by the most recent auction until March 17 when accounting is complete, the program’s regulator said. (Reporting by Rory Carroll; Editing by Chizu Nomiyama, Andrew Hay and Peter Galloway)

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