The California Air Resources Board (CARB) has issued official notice that the state’s cap-and-trade program will hold its second auction of greenhouse gas allowances on February 19, 2013. The state’s system is the second functional carbon market in the U.S., following the Northeast’s Regional Greenhouse Gas Initiative (RGGI).
California’s February auction will offer nearly 13 million 2013 vintage allowances and 9.5 million 2016 future vintage allowances for sale, and is the next step toward maturity for the world’s second-largest carbon market, which will eventually cover 85 percent of all state emissions.
Allowance Prices Set to Rise
The system’s first auction, declared “a success” by state regulators, resulted in a complete sell out of all 23.1 million available 2013 vintage allowances at $10.09 per allowance, just over the set floor price of $10. While the clearing price was relatively low, analysts have forecast allowances will sell for just over $14 in 2013.
California’s cap-and-trade system is an attempt to reduce its emissions to 1990 levels by 2020, roughly a 17 percent reduction. The state emits roughly 447 million metric tons of carbon dioxide annually, and while the largest percentage comes from transportation, just over a third come from electricity generation and industrial sources.
These large-volume emitters (more than 25,000 annual metric tons of CO2) must now abide by a “cap” on emissions that declines every year. Additional emitters will enter the system in 2015. If companies cannot reduce their emissions to meet the cap through offsets or efficiency measures, they must turn in allowances equal to their excess emissions.
Allowances are purchased through quarterly auctions, and authorize the holder to emit one ton of carbon. During the first auction, these large-scale emitters, known as “compliance entities,” purchased 97 percent of all sold allowances.
A Climate Dividend for Consumers
To alleviate concerns the system could lead to higher prices for electricity and fuel, state regulators have directed roughly 85 percent of all allowance revenue to return directly to households in the form of a climate dividend.
Twice per year, each household will be given a credit on their utility bills, with the total amount depending on auction revenue. State regulators estimate the system will return up to $22.6 billion to utility ratepayers by 2020.
First California, Then America?
Stakes are high for California’s cap-and-trade system. Beyond reducing emissions in America’s largest state and the sixth-largest economy in the world, success in the Golden State could have a regional ripple effect, strengthening other carbon markets.
Under the Western Climate Initiative, California plans to link its carbon market with Quebec’s provincial system, set to launch in 2013. The two systems could hold their first joint auction in August 2013, increasing the overall market 20 percent and creating the first international carbon market in North America.
Regulators have also considered linking to RGGI, and success in California’s system could help quell skepticism among other Western U.S. states that reducing emissions will harm their economies.
Los Angeles skyline smog image via Shutterstock
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