Roll on California, Roll on: State is Set for Second Carbon Auction, Continues to Take Action on Climate Change

While those in Washington continue to discuss climate change, California and other states are taking action.  Case in point, the Regional Greenhouse Gas Initiative (RGGI) – a group of nine Northeast and Mid-Atlantic states - recently lowered its cap 45% to push towards more ambitious pollution reduction goals from the region's power plants. In California, a recent emissions report showed that major polluters in the state are reducing their greenhouse gas emissions, and continues to roll on with its cap-and-trade program, holding California’s second carbon allowance auction today – February 19th, 2013.

We've written before about the mechanics of the auction and the top four things to know about it. The first auction held back in November of 2012 was a success, selling all of the 2013 allowances and about 14% of the 2015 advanced allowances.  So what do we have to look forward to today?

Breakdown of today's auction

Today's auction is one of four that will take place this year. The state has an auction notice that explains it in more detail, but the main items to note are that two types of allowances will be available for sale – 2013 or "current vintage"  allowances and 2016 or "advanced vintage" allowances. There will be about 13 million of the 2013 vintage and 9.5 million of the 2016 vintage available for sale. The minimum price per allowance is $10.71, up 7% from last year's minimum of $10. As set forth in the regulations, the price floor will be "increased annually by 5 percent plus the rate of inflation as measured by the Consumer Price Index."

The market players will determine this auction's settlement price but there are plenty of folks speculating. Last November, the price settled just above the floor at $10.09 and market observers have predicted that today's may settle at upwards of $13 per allowance.  We aren't making any predictions, but will give our analysis when auction results are released on Friday, February 22nd.

Investing the proceeds

The price begs the questions of how much will the state generate from holding these auctions and where will the proceeds go? We did a quick analysis (see figure below) and from the sale of state-owned allowances in 2012-2013 there could be about $225 million in proceeds by the end of this year. That assumes all vintage 2013 state owned allowances sell this year at the floor price of $10.71 and that 14% of the vintage 2016 sell at $10.71. This is money that can be used for a variety of purposes to meet the goals of California's global warming solutions law

On the question of where the proceeds will go, the state is rolling forward on deciding the details. Today, the California Air Resource Board (CARB) is holding the first of three public workshops to solicit feedback on how to invest the auction proceeds. A concept paper lays out preliminary priorities for investing the auction proceeds in programs and projects that help achieve the state's greenhouse gas reduction goals. EDF is committed to seeing that proceeds from the auctions are directed to projects that advance the goals of AB 32 in an effective and equitable manner.

Today is yet another milestone to celebrate California's leadership in action when it comes to addressing climate change. While others continue to talk, the state has successfully put a price on carbon, reduced emissions, and invested in a clean economy. To adapt a line from Woody Guthrie, “Roll on, California, Roll On.”

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