Top 4 things to know about California's first ever carbon auction

While millions of Americans recover from the Sandy-Nor’easter extreme weather event combo, and even as President Obama’s remarks about action against a “warming planet” linger, all eyes will be on California this coming Wednesday. This is when the next big event in the climate change conversation will take place.

Between 10am and 1pm pacific time on November 14th, California will conduct the state’s first ever cap-and-trade auction for climate change pollution.  This landmark event will kick off the second largest carbon market in the world, the European Union being the first. Entities covered in the program include utilities, oil refineries, oil producers, and large manufactures, though other individuals and organizations can also participate to buy carbon allowances if they meet the state’s rigorous requirements.  A practice run was held back in August, and all systems are ready to go. More information about the nuts and bolts of the auction can be read here.

In anticipation of this historic occasion, here are four things to keep in mind:

1.  This is the best designed cap-and-trade program in the world
California has the good fortune of learning from predecessor cap-and-trade programs like the European Union Emissions Trading Platform, the Regional Greenhouse Gas Initiative, and the Acid Rain Program, just to name a few. Key elements of California’s program include giving free allowances to industry in the beginning years to help with transition; letting entities bank allowances for future use; and establishing an allowance reserve in case prices exceed a certain value. All help keep carbon prices more stable and make for a well-functioning market.

2.  A price will be established for carbon, but that will vary as the program evolves
The California program will include auctions four times a year through 2020 – 32 more times after November 2012.  As such, the number of participants, the settlement price and other results of the first auction may not necessarily predict the activity of future auctions. Over time, the market will change and both prices and participation will fluctuate as the cap reduces and businesses decide how best to participate.

3. Money from the auctions will be used to invest in California’s clean energy future
Proceeds from the auction must be invested in ways that further the goals of the law – the Global Warming Solutions Act of 2006 (AB 32).  Though these investments are scheduled to start in the next fiscal year, a specific investment plan is still underway and is being guided by two bills passed at the end of California’s legislative session. Likely project categories include renewable energy, energy efficiency, advanced vehicles, and natural resource conservation. In addition, 25% of proceeds must be used in ways that benefit disadvantaged communities. These investments will boost clean tech in California, improve air quality, and create jobs.

4. California’s leadership will serve as a launch pad for other programs
California is the ninth largest economy on the planet, and the world is watching. No state or country can stop climate change alone, but California’s environmental policies have a history of success and replication, including clean car, clean fuel and energy efficiency standards that have saved consumers across the US hundreds of billions of dollars in avoided energy purchases.  If the past is any indicator, California’s rich history of leading the nation on responses to critical environmental problems, while delivering wide ranging benefits, means the US is on the brink of something special.

A public notice of the auction results will be released on Monday, November 19, 2012 and will be posted to both the Air Resources Board and auction website.

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One Comment

  1. sadhika
    Posted November 12, 2012 at 8:21 pm | Permalink

    With the cap and trade there are some issues like that of leakages especially when it comes to importing of electricity (and post 2015 importing of transport fuel) . As of now California will be the only state with a carbon pricing regime, which can obviously lead to some problems. And so, in response, there is a lot of emphasis being laid on California leading the way, and that the success of the program here will lead it to be adopted by other states as well, which should help overcome those problems. But, I wander too what extent is California's cap and trade regime under stress, or unlikely to succeed, because other states don't have similar programs, and how could this impact its potential adoption.

    Nonetheless, the cap and trade is a huge step for California, and the United States, and hopefully important lessons have been learnt from other countries and similar regimes. I hope that the program is successful, and not only would it be a great example for other states within the nation, but for other countries as well. Carbon pricing remains a great economic strategy, theoretically. However, its policy design, elsewhere, has always been weak, making it an unattractive option through the years. I hope California will help change that.

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