Latest Auction Results Show that California’s Cap-and Trade is in Full Swing

By Katie Hsia-Kiung

There are certain key fundamentals of swinging a bat that must be mastered before you can hit a home run; proper posture, a strong stance, and good contact with the ball. The last essential step is the follow-through.

In fact, success in nearly everything relies on putting an idea or solution in motion, and then following through to make sure it achieves the goals that it set out to achieve. The same can be said for building a successful cap-and-trade program.

In 2012-2013, California’s cap-and-trade program celebrated a strong launch, during which companies were able to purchase emissions credits through five quarterly auctions and a well-established secondary market. This stretch brought the start of the first compliance period, the first auctions, and the issuance of the first California Air Resources Board-verified offset credits. In 2014, there may not be as many “firsts,” but executing a strong follow-through is as important as a good launch.

Today, the California Air Resources Board (CARB) published the results of the seventh cap-and-trade auction. All current vintage year allowances offered for sale by CARB were purchased, signaling continued confidence in the program. The complete sale of 2014 allowances also demonstrates that some of California’s worst polluters are paying for their emissions.

Bids for 7.8 million more 2014 vintage allowances were placed than could be filled, signifying a competitive current auction. The price for 2014 vintage allowances, which can be used for compliance from now on, was $11.50, which is 16 cents above the minimum floor price of $11.34.

2017 vintage year allowances sold in this auction at the floor price and 44% of the allowances offered were sold. This was not surprising due to recent amendments to the program approved by CARB at the end of April, which included extension of transition assistance through the second compliance period. Furthermore, emissions data released in mid-May shows that California’s continued economic growth has not resulted in the same amount of emissions growth, meaning the state is growing in a more efficient manner. Accordingly, lower overall demand for 2017 vintage allowances may be an indication that compliance entities are recalibrating their long-term compliance strategies based on indications that compliance with AB 32 will be less costly than previously expected.

Overall, these results reflect a healthy, active carbon market in California that’s in full swing.

Following a long string of successful auctions, these results may not seem particularly extraordinary. However, maintaining the integrity of the quarterly auctions past the initial launch of the program is an important part of the follow-through needed to make the cap-and-trade program successful as a whole. The results released today show that the market continues to move in the right direction.

Other recent developments, including the release of the first round of regulation amendments, show CARB is dedicated to following through on the implementation of a successful cap-and-trade program. While EDF was not in favor of extending transition assistance to California’s largest stationary pollution sources (petroleum refineries), overall, the latest amendments will serve to strengthen the program and increase transparency and enforceability. The adoption of these amendments is the culmination of an almost year-long process which included collecting comments and meeting with stakeholders to refine the changes to the regulation.

This dedication can also be seen in the First Update to the Scoping Plan, which was released last week and is expected to be approved tomorrow. In this update, CARB shows that while California is on track to meet its 2020 target, planning must begin about how to make the necessary reductions post-2020.

Although opening day for Major League Baseball was more than a month ago, the season is just getting started. In fact, every baseball team plays 162 regular season games and the entire baseball season lasts close to six months. The best coaches in the league know how to plan and prepare their teams for such a long season, just as California must plan if it is to make the transformation to a cleaner, more resilient economy.

California’s cap-and-trade program, along with other AB 32 policies such as the Low Carbon Fuel Standard, is building the groundwork for this transformation, as shown in a new report released today. While the current length of the program extends to 2020, California is preparing for the long term and working to cement itself as a future carbon market Hall of Famer.