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California raised an estimated $640 million for its greenhouse gas fund by auctioning permits to curb carbon emissions—a result that analysts said shows restored confidence in the state’s cap-and-trade program.
Every allowance offered in the auction sold at above the $13.57 floor price, according to California Air Resources Board results released Aug. 22.
The auction, conducted Aug. 15, was the first since a California appeals court rejected claims from businesses and California’s Chamber of Commerce that the auction was an illegal tax. It also was the first since enactment of a state law championed by Gov. Jerry Brown (D) extending the cap-and-trade program through 2030.
Under the state’s program, regulated entities—including power plants, oil refineries, and other industrial facilities and distributors of natural gas and transportation fuels—can comply with annual carbon-emissions caps either by installing controls or purchasing allowances. Excess allowances can be sold. Each allowance equals one ton of greenhouse gases.
The resolution of the legal battle, as well as the state’s extension of the program, “contributed a great deal to the strong August auction results,” Erica Morehouse, an Environmental Defense Fund attorney monitoring California’s climate policies, said in a statement.
At the auction, the nearly 64 million allowances available for use through 2020 went for $14.75 a ton, $1.18 higher than the minimum price. Another 9.7 million future allowances, available for use beginning 2020, sold for $14.55 a ton.
”As we had anticipated, auction demand was the strongest in years,” Chris Busch, an analyst at San Francisco-based think tank Energy Innovation, said in a statement.
The results marked a contrast from an auction in May, when all the allowances for use through 2020 sold out at the minimum price and many future allowances went unsold.
The Aug. 22 auction actually raised a total of $935 million, but $295 million of that amount is consigned to the state’s independently owned utilities for consumer rebates and energy efficiency programs. State law requires the $640 million be used on programs that reduce greenhouse gas emissions.
Busch said stable auctions are considered a sign of success. But he also said despite the most recent auction results, “it’s not all good news” for the state’s program.
California’s carbon market has an “allowance oversupply issue” that remains unresolved, he said. Some of the allowances from the most recent auction will be “banked” for use in later decades, which Busch warned could forestall ramping-up emissions reductions that the state needs to reach its 40 percent reduction goal by 2030.
The Air Resources Board needs to address the oversupply issue “sooner than later so that cap-and-trade can play a stronger role in reducing emissions,” Busch said.
State regulators could impose sunset provisions on banked allowances or add provisions to force quicker use of banked allowances, Rachel Jiang, an analyst at Bloomberg New Energy Finance, told Bloomberg BNA in an email.
To contact the reporter on this story: Carolyn Whetzel in Los Angeles at cwhetzel@bna.com
To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com
Auction results are available at: http://src.bna.com/rTe.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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