The Conoco Phillips refinery in Rodeo, Calif. (Getty Images)
A free-market auction has established a price for pollution in California: for each metric ton of carbon dioxide emitted, businesses, utilities and industries that bought allowances last week will pay just $10.09.
The results of the first auction, announced on Monday, came as both a relief and a bit of a disappointment, although state officials put the best face of it. In a statement, Mary D. Nichols, chairwoman of the California Air Resources Board, said, the auction was “a success and an important milestone for California as a leader in the global clean-tech market.” She added, “By putting a price on carbon, we can break our unhealthy dependence on fossil fuels.”
Among traders and regulators, there was relief that all of the 23.1 million allowances covering 2013 emissions that were up for auction were sold. The number of bids exceeded the total allowances by about 3 to 1. Polluters do not have to submit the allowances to cover their emissions until November 2014.
“Given the lack of short-term requirements to purchase anything, I would say market participants that we spoke to were surprised that the full volume cleared and that it was three times oversubscribed,” said Lenny Hochschild, the managing director of global carbon markets for the advisory and brokerage firm Evolution Markets.
And Thad Huetteman, the president of Power and Energy Analytic Resources, said: “It closed close to the minimum, but clearly there was demand for the allowances. Since we defeated that expectation — that the market would be undersubscribed — that caused a sigh of relief.”
But some analysts had expected a higher final price — at least between $11 and $12, not a bare nine cents above the $10 floor.
Mr. Hochschild suggested that the outstanding legal challenges to the cap and trade program, one of which was filed by the Chamber of Commerce on the eve of the Nov. 14 auction, made investors skittish about the program’s long-term viability and thus depressed the price.
While proponents of the new market feel that it will become more robust once financial firms actively take part, the overwhelming majority — 97 percent — of the allowances sold in California’s first auction went to what the air regulators refer to as “compliance entities” — the companies that must account for their greenhouse gas emissions.
Most of the nearly $300 million in auction proceeds is likely go back to investor-owned utilities in the state like Southern California Edison and Pacific Gas & Electric Company, to be directed back to their customers. On Friday, the California Public Utilities Commission announced a proposed division of these spoils: 85 percent to households, which would receive a “climate dividend” of $30 on their bills twice a year; 10 percent to small businesses; and 5 percent to help industries whose out-of-state competitors do not have to pay for the pollution they generate.
On the other side of the country, the Regional Greenhouse Gas Initiative, a coalition of Northeastern states that has imposed a cap and trade system on the electric utility sector, has so far had 17 auctions of emissions permits. The administrator for that program recently told Point Carbon that the system has lowered electricity bills overall in the Northeast by $1.3 billion since 2009.
In the first eight RGGI (pronounced reggie) auctions, the subscription of current permits sold out. But that has only happened once more in the ensuing nine auctions held since the fall of 2010. The clearing price for an allowance after the most recent auction was $1.93.
All 23.1 million allowances in California’s first cap and trade auction found buyers. (California Air Resources Board)
Author: Felicity Barringer
Source: The New York Times