California's first carbon market takes flight

The California Air Resources Board announced yesterday the results of the first cap-and-trade auction, held last Wednesday, to limit carbon pollution from large emitters under California’s clean air law, AB 32.

Two items were for up for sale: carbon pollution permits (known as allowances) for use starting in 2013, and allowances for use starting in 2015. Yesterday's results revealed that auction participants, including the state’s petroleum companies and other large industrial emitters, snapped up all of the 2013 allowances, at a clearing price of $10.09, and 5.5 million of the 2015 allowances, at the auction floor price of $10. The 2015 allowances that did not sell will be held back from the market until 2015.

As expected, some participants opted for a wait-and-see approach, bidding at or near the floor price. That’s not surprising, considering that last week’s auction was only the first of five scheduled over the course of 2012-2013. As the market takes shape, participants will glean a better understanding of the true market price of reducing a ton of carbon pollution, which will inform future bidding strategies. The program’s first "due date" is not until Nov. 2014, when covered facilities will need to turn in allowances and offsets equal to 30 percent of their 2013 verified emissions.

The advantage of a single statewide cap on pollution is that when and how facilities choose to acquire allowances does not impact the pace of emission reductions: As long as they all come due in full and on time, emissions will have been reduced. Yesterday’s results were important in showing the auction went off without incident; expect future auctions to be more indicative of the price of carbon in the market after trading picks up.

Image by OtnaYdur via Shutterstock

Next page: Auction proceeds to benefit consumers

The $230 million generated from the sale of 2013 allowances will be distributed to the state’s electric investor-owned utilities to provide directly to their customers. On the basis of a proposed decision issued last Friday from the California Public Utilities Commission, which regulates the IOUs, the lion’s share will be set aside for California households.

The $55 million generated from the sale of 2015 allowances will be deposited in a special fund in the state treasury. Governor Brown’s FY 2012-2013 budget earmarks a portion of the funds for General Fund expenditures that reduce carbon emissions and advance the goals of AB 32.

Over the long-run, under the terms of AB 1532 and SB 535, which Governor Brown signed in September, CARB will develop investment plans with the Department of Finance to capitalize on opportunities to drive emission reductions and maximize returns for the California economy. SB 535 ensures at least 10 percent of those projects are located in the state’s most disadvantaged communities, and 25 percent of all proceeds benefit those communities.

The auction proceeds will be distributed to the utilities and deposited in the state treasury on Dec. 10.

Next page: Californians want to move forward

Last week’s auction also coincided with the release of two surveys showing resounding voter support for California’s efforts to hold polluters accountable and invest the proceeds in clean energy technologies and infrastructure. The first, from Lake Research, revealed that a 65 percent majority of voters in California, Oregon and Washington favor a proposal to “invest funds raised by charging large companies climate pollution fees in expanding clean energy sources,” including 45 percent who strongly favor it. 

The poll also found broad support for the proposal to “reduce climate pollution and invest in clean energy sources by charging large companies for the pollution they create that contributes to climate change” across all three states. When given the option to support investing the pollution fees in reducing the deficit, more voters favored investing the revenues in clean energy.

The second, a statewide poll of registered voters conducted by the LA Times/USC Dornsife, found Californians support the state’s cap-and-trade program by a 2-to-1 margin. Sixty-three percent of voters agreed that California needs to break from "outdated energy policies," and supported the statement that cap and trade "will reward companies that produce alternative energy like wind and solar, and will re-charge our economy by creating jobs, attracting new, innovative companies to California, while reducing our dependence on foreign oil.”

As California’s carbon market hits its stride, one thing is clear: Despite the oil industry’s best efforts, Californians want to move forward.

This piece originally appeared on the National Resources Defense Council Staff Blog on Nov. 19, and references to "today" in the original post have been changed to "yesterday." It is reprinted with permission.