Author Archives: Emily Reyna

How an Innovative Partnership is Cutting Refrigerant Pollution and Creating Profits

ca_innov_series_icon_283x204EDF’s Innovators Series profiles companies and people across California with bold solutions to reduce carbon pollution and help the state meet the goals of AB 32.  Each addition to the series will profile a different solution, focused on the development of new technologies and ideas.

Refrigerants are modern day inventions that allow us to keep our ice cream cold and our homes comfortable. These gases are used everywhere from kitchen refrigerators to cooling systems in grocery stores and food warehouses to air conditioning in homes, office buildings, data centers, and cars. While refrigerants have become essential to modern society, most are very harmful to the environment when released into the atmosphere. Refrigerants such as chlorofluorocarbons (CFCs) and hydrofluorocarbons (HFCs), also known as F-gases, are greenhouse gases thousands of times more potent than carbon dioxide.

Who: EOS Climate was founded in 2008 and has more than 20 full-time employees. JACO Environmental is a leading appliance recycler in the U.S., with a network of over 30 collection facilities around the country, including two in California that employ 60 people.

What: EOS creates economic incentive for companies to responsibly manage refrigerants across their lifecycle. In partnership with JACO and other global sustainability leaders, EOS is preventing emissions of millions of tons of greenhouse gases.

Where: EOS is headquartered in San Francisco. JACO has facilities in Hayward and Fullerton.

Why: EOS aims to transform business as usual by treating refrigerants as financial assets rather than consumables. AB 32 has given EOS a foundation for this business innovation and economic opportunity.

Over the past 50 years, global population and economic growth has resulted in a dramatic increase in demand for refrigeration and air conditioning worldwide. As a result, a significant amount of leaked refrigerants have reached the atmosphere. Further, the common practice of sending retired equipment to recycling centers and landfills, many of which are not equipped to properly dispose of refrigerants, has meant that most refrigerants are released during end-of -life practices. EOS Climate  and JACO Environmental are aiming to solve this problem.

Based in San Francisco, EOS Climate was founded in 2008 by Presidio Graduate School classmates Jeff Cohen, Todd English, and Joe Madden, as an outgrowth of their MBA program in Sustainability Management. Their idea was to create economic value for organizations that properly manage refrigerants and other F-gases. EOS’s solution was to develop a scalable system to recover and destroy CFC refrigerants from older equipment, which could be financed through the generation and sale of Verified Emission Reductions in California's cap-and-trade program under the Ozone Depleting Substances offset protocol.

By working through AB 32, EOS has avoided millions of tons of greenhouse gas emissions, bolstered California’s recycling industry, and helped accelerate a transition toward more climate-friendly technologies. With venture backing from Firelake Capital and partnerships with companies like JACO Environmental, CleanHarbors, and Hudson Technologies, EOS is proving that AB 32 gives companies the tools to make fighting climate change a winning business model.

Photo credit: EOS Climate

Photo credit: EOS Climate

"We figured out a way to help cut climate pollution while making a profitable company. Without AB 32, CFC refrigerants would continue to be released from aging equipment and the climate benefits would not have been possible" says Todd English, VP of Operations at EOS. "The rise in refrigerant emissions threatens the progress the world is making to cut other greenhouse gas emissions. We wanted to make a company that could move the needle by showing that alternatives are out there – helping cut emissions while growing jobs. I think we've demonstrated that it can be done… and we are just getting started. We recently launched the Refrigerant Asset System (RAS) which expands our initial approach of using markets to drive economic and environmental outcomes to address the entire refrigerant lifecycle across multiple industries and sectors."

One sector that EOS has seized upon is appliance recycling. By working with JACO Environmental, they are changing the way refrigerators are collected, handled, and recycled. In the partnership, JACO collects fridges and sends them to specialized facilities like the ones in Hayward and Fullerton. There, the fridges are taken apart and the refrigeration gases inside are sucked out, collected, cleaned, and measured. The gases are then further processed and transported to a certified destruction plant. According to JACO, the removal of a single aging refrigerator or freezer can prevent up to 10 tons of carbon dioxide equivalent gases from entering the atmosphere. EOS and JACO estimate that together they have prevented greenhouse gas emissions equivalent to taking 800,000 cars off the road annually.

Photo credit: JACO Environmental

Photo credit: JACO Environmental

“Recycling refrigerators and freezers in an environmentally friendly way is something my company is very good at. The partnership with EOS is good business, and has given us more opportunities for growth.” says Michael Dunham, Director of Energy & Environmental Programs at JACO. “We aren't doing all this just to stop climate change. We are doing it because it's good business, and the fact that AB 32 says the state has to cut greenhouse gases has helped us expand year after year. Our experience in California, in conjunction with our partnership with EOS, means we are poised to transform the way we approach refrigerator lifecycles across the United States.”

With their rising ‘Refrigerant Revolution’ Refrigerant Asset System, and a growing list of customers and partners, EOS Climate has created a business model that drives economic and environmental outcomes while helping the Golden State reach its aggressive climate goals and bolster its position as the global hub of innovation.

Please note that EDF has a standing corporate donation policy and we accept no funding from companies or organizations featured in this series. Furthermore, the EDF California Innovators Series is in no way an official endorsement of the people or organizations featured, or their business models and practices. 

 

Read more on our California Innovators Series:

Posted in California Innovators Series, Global Warming Solutions Act: AB 32, Offsets | 1 Response, comments now closed

Four Reasons California Cap and Trade had an Extraordinary First Year

Emily Reyna - 300dpi(This post first appeared on EDF Voices)

In California, we’ve just marked the one year birthday of the state’s landmark cap-and-trade program, a market-based approach to reducing the Golden State’s carbon pollution to 1990 levels by 2020. EDF thinks it’s a pretty big deal, and we’re not alone: the program weighed in at number one on Time’s top 10 green stories of 2013.

In lieu of cake and candles to celebrate the program’s first year and future potential, we've published the California Carbon Market Watch: A Comprehensive Analysis of the Golden State’s Cap-and-Trade Program, Year OneThis report is our comprehensive assessment of cap and trade’s inaugural year, and our analyses and interviews with market experts conclude that a strong, healthy, and enduring carbon market has emerged.

We know that California's program is still young and isn’t the world’s first emission trading program, or even the first in the U.S., so why are we so excited about this milestone? Here are the top four reasons we’re celebrating – and why the global community should, too:

1.      It’s a well-designed program off to a promising start. California has held five allowance auctions to date and they’ve all run smoothly. All emissions allowances usable for compliance in 2013 were sold, auction participation has been strong and allowance prices have remained stable and reasonable. In addition to successful quarterly auctions, a healthy secondary market over the first year suggests that regulated companies are purchasing allowances and thereby incorporating the cost of carbon pollution into their strategic planning. This successful start is due to a commitment to building a solid foundation of principles carried out under the highest of market standards.

Genesis343/Deviant Art

2.     With cap and trade in place, the California economy continues to recover. With a price signal now in place for emission reductions, regulated companies can flexibly decide how to reduce their pollution. In addition, clean energy companies and innovators are creating products and services that are transforming California to a clean energy economy. And money raised by the auctions will be invested in this clean energy future, and especially benefit communities hit hardest by climate change. These investments will boost clean tech in California, improve air quality, and create jobs.

3.     The foundation is set for a strong, long-term program. In 2015, California’s cap will more than double in size to cover 85% of the state’s economy and include transportation fuels, thus ensuring carbon pollution reduction from its largest source – transportation. And, there is already discussion in the state capital about the program’s future after meeting its goals by 2020.

With these positive indicators, we’re confident cap and trade is here to stay. The continued success of this program will also show the world that cutting carbon can be done efficiently and affordably, while driving innovation and growing an economy that builds healthier – and more resilient – communities.

4.     The world is watching…and is starting to act.The program is the most comprehensive and ambitious in North America, in both the sheer size of the state’s economy (the 8th largest in the world) and the number of sectors covered. Cap and trade is not only cleaning up California, it’s also serving as a model to build a comprehensive solution to the global climate crisis.

If we want to move the needle on climate change, it will take a global community to make it happen. The state’s carbon market is an important step, and we hope other jurisdictions will follow our lead to create market programs of their own.

In the past year alone, there are promising signs of collaboration beyond California’s borders: the Golden State has formed a series of important partnerships including linkage with Quebec, a non-binding agreement with Oregon, Washington state and British Columbia to establish a regional climate plan, a Memorandum of Understanding (MOU) with China which launched seven of its own pilot trading programs last year, and a MOU with Australia to guide collaboration in addressing climate change.

With California as a shining example of what is possible, I'm confident that others will continue to join the fight. So, happy first birthday California cap and trade. May the years ahead be as bright as the first.

Posted in Cap and trade, Cap-and-trade auction, Clean Energy, Climate, Global Warming Solutions Act: AB 32, Linkage | Comments closed

California’s Carbon Market Caps off Successful First Year of Auctions

Emily Reyna - 300dpiThe results of California's fifth carbon auction were released today, marking an important environmental milestone for the state – one year since the debut of its cap-and-trade system.

While international climate discussions drag on in Warsaw, Poland, today's milestone is further demonstration of the importance of California’s continued leadership on climate action, putting the world’s first economy-wide cap on emissions, and using a market mechanism to put a price on carbon. Today's results cap off a successful year. As our one year report in January will show- the auctions have run smoothly, allowance prices have remained stable and reasonable, and compliance entities are participating. In addition, allowances are selling, official offsets have been issued, Quebec linkage will begin in under 2 months and legal uncertainty has been lifted. Congrats California, the positive momentum of your smart climate policies continues on both strong legal and policy footing.

Overview of fifth auction results

For the second auction in a row, all current and future allowances sold, demonstrating continued viability of the market and bringing total state auction proceeds to more than $530 million. That money must be invested in projects that reduce climate pollution, and at least 25%, or over $130 million to date, will provide clean energy opportunities to disadvantaged communities.

nov13 results

This week 16,614,526 current (V13) allowances sold at $11.48 and 9,560,000 future (V16) allowances sold at $11.10.  For V13 allowances, there were almost 2 times more credits bid on than were sold which demonstrates strong demand in the market. As was expected by analysts, the fifth auction showed a lower settlement price than in previous auctions. This is normal for end of year auctions as many of the covered entities have likely already purchased the allowances they need to cover their 2013 emissions targets.  Still, the complete sale of allowances indicates participants are confident the market is here to stay and are serious about preparing for future compliance obligations.

Keeping our eyes on the prize of reducing emissions

We are steadfast in ensuring that this first year is just the beginning; California's cap-and-trade program and emission reduction goals remains robust, with life beyond 2020.

As documented by the CalEPA, the impact of climate change is already affecting the state in the form of more frequent and intense wildfires, shrinking glaciers and snowpack, and hotter temperatures. In fact, 2013 is predicted to be the driest year ever recorded in California. With this data, we can't afford not to reduce our emissions to avoid the worst impacts of climate change.

As expected, cap-and-trade is a working solution. It is incentivizing the state's dirtiest polluters to find innovative , low-cost solutions to reduce emissions and is garnering interest at home and around the world. In the spirit of the season, we are thankful that this first year of auctions has been remarkably successful; that the economy is recovering and that the state is on track to meet its 2020 emission reduction goals.

Posted in Cap and trade, Cap-and-trade auction, Climate, General, Global Warming Solutions Act: AB 32 | Comments closed

Sky is Not Falling on Cap and Trade

Yesterday, Thomson Reuters Point Carbon published an updated forecast for allowance prices in the California carbon market, causing many skeptics to pontificate the beginning of the end for cap and trade as we know it.

But many failed to recognize what the market IS doing: Putting California on a fast track to reach its greenhouse gas reduction goals and at a cost much lower than expected.

While the Reuters forecast has raised concerns about the potential of an over-supplied market, there are three key implications of their analysis, presuming the numbers are accurate.

 

  •  California’s climate law (AB 32) is working.

The cap and trade program limits pollution from over 350 major sources in California, yet it is just one among a suite of tools to cut climate pollution to 1990 levels by 2020. It complements and provides a backstop to other statewide policies. Point Carbon’s analysis says that it is because of policies like the Renewable Portfolio Standard (RPS) and Low Carbon Fuels Standard that regulated entities in the power and transportation sector will see an emissions decline. This means, together, the AB 32 measures are working to get the state to its 2020 goal – a huge success.

  •  Achieving the cap is proving to be much less costly than originally expected.

Naysayers of the program and many regulated businesses have continually expressed fear of high compliance costs. Even Point Carbon projected $70+ prices just a few years ago with a similar type of report. This new forecast is in stark contrast to those fears, and predicts that the regulated entities will be able to reduce their emissions at much lower costs than expected. Even if prices are at the floor, the cap is what matters in achieving our climate goal. A price signal on carbon today also incentivizes investment in low carbon projects that lock in critical benefits long into the future.

  •  This is a marathon, not a sprint, and post 2020 goals are crucial.

California has aggressive goals beyond 2020, with an 80% reduction below 1990 levels by 2050 as an objective established in a previous executive order. We see cap and trade as an important part of meeting that goal. Because markets are forward looking, if the market anticipates better economic conditions and if there are expectations that businesses may bank allowances for use after 2020, prices could jump, particularly if there is a shortage of offsets. Low costs are good news, as long as California meets its cap, but we need to think ahead to post-2020 when it will be particularly important to ensure more ambitious reductions can be met at reasonable costs. Offsets, banking, and other cost containment mechanisms will continue to be important features of the program.

Point Carbon’s forecast is based on a particular modeling approach and assumed set of conditions. As with all models, it is hard to verify the results without intimate knowledge of the model’s assumptions, inputs and sensitivity analysis. For example, depending on assumptions about the supply of offsets, this analysis could be contrary to conclusions based on assumed offsets shortages that Point Carbon and the American Carbon Registry have predicted in the past.  The analysis assumes the “slow economic recovery” will continue and cites this as one of the major reasons for their revised forecast. California’s economy, however, has recently shown great economic strides, with evidence that the state is outpacing the rest of the country in employment growth.

There will undoubtedly be more analysis and commentary about California’s groundbreaking carbon market and EDF will continue keeping a close eye on the market’s performance, which thus far has produced clear signs that cap and trade is working – and that California’s environment is better off because of it.

Posted in Cap and trade, Global Warming Solutions Act: AB 32 | Comments closed

California’s Latest Cap-and-Trade Auction Shows Staying Power, Sparks International Interest

For those following cap and trade, today is another success for California’s economy and environment. The fourth auction came and went last Friday and the results published by the California Air Resources Board (ARB) are once again decisively positive. With complete sale of current allowances, diverse bidder participation and stable clearing price, the health and staying power of the carbon market is clear.  Let's take a closer look at the results:

Results Summary

Allowance year Allowances offered Allowances sold Settlement price
2013 13,865,422 100% $12.22
2016 9,560,000 100% $11.10

Current allowances sold and settlement price: All of the current 2013 allowances offered in this auction were purchased, which indicates that the carbon market remains healthy and competitive. The price per allowance settled at $12.22. This is 13% below May’s clearing price. While this dip was expected by analysts –with one contributing factor being the possible amendment to the cap-and-trade regulation that would increase free allowances to industry and natural gas emitters in the second compliance period — there are a number of reasons why the moderate prices for allowances are good news.

Low prices actually suggest that regulated companies believe they will have lower than expected costs in complying to allow California to meet the carbon cap. And as noted in a separate EDF post, the right way to judge a carbon market is in the cap, not the prices. Another promising reason for lower prices may be the fact that regulated entities like California refineries are investing in energy efficiency projects that cost-effectively reduce both emissions and the companies’ energy bills.

Future allowances sold and settlement price: For the first time in the history of the cap-and-trade regulation, all futures sold at a clearing price of $11.10 over the floor price $10.71. This points to increased certainty in the future strength of the market. As we approach the second compliance period, participants are preparing to meet their compliance obligations. In addition, the market is responding to ARB’s continued commitment to ensuring the longevity of this program by proposing changes like additional cost containment and maintaining stringency on the transportation sector. Another reason for strong demand in the advanced auction can be seen by the fact that over 96% of future allowances were purchased by compliance entities, meaning some of the programs biggest polluters may have started buying credits for their post 2016 obligations.

Qualified Bidders: With each auction, the pool of qualified auction participants continues to diversify. This auction saw 79 qualified bidders. This diversity in participants reflects the great interest in California’s carbon market and demonstrates that there is no single company controlling the market.

Auction proceeds: This auction brought almost $140 million to the state, for a total of almost $400 million to date. California communities should look forward to Governor Brown holding up his commitment to ensure those proceeds are used to advance the goals of AB 32, directing them towards the highest priority, most effective investments for climate pollution reductions, especially in disadvantaged communities which will get at least 25%  or almost $100 million to date.

Sparking International Interest

We’re about nine months into what many have called a “grand experiment,” and far from the doomsday warnings from opponents who argue California’s climate change law will hurt consumers, jobs, and the ability of businesses to expand.

Today, we are seeing a quite different future.

In fact, those sky-is-falling messages continue to be out of sync with economic reality and public opinion in both California and around the world.

A recent PPIC survey shows a record-high majority of Californians say California should act now to reduce greenhouse gas emissions, rather than wait until the economy and job situation improves. And various other jurisdictions are following California’s lead, including other states, provinces and countries. Since California’s first cap and trade auction in November 2012, the state approved linkage with Quebec; Shenzhen, a city on the South China Sea launched the first of seven Chinese regional pilot carbon market systems with California’s top climate change official, California Air Resources Board (CARB) Chair Mary Nichols in attendance at the launch; and the Australia Government Clean Energy Regulator signed a Memorandum of Understanding with California focusing on “information-sharing” to improve our respective market base programs to reduce climate pollution.

The California carbon market continues to march forward with good news. And while a true “global” carbon market may still be a ways off, others around the world are looking to learn from the Golden State.

Posted in Cap and trade, Cap-and-trade auction, Global Warming Solutions Act: AB 32 | Comments closed

An Effective Carbon Market for a Stronger California

By Emily Reyna and Katherine Hsia-Kiung

 

Last Friday, California companies participated in the fourth cap-and-trade auction since the program’s historic opening in November 2012. The results of this auction will be made public on Wednesday, but even without the exact numbers, the program’s previous success is proving the carbon market won’t be going anywhere anytime soon. Just look at the scoreboard so far and you’ll see California’s economy is rebounding. And, despite efforts by the program’s opponents to shut down the program, every auction to date has seen strong and diverse bidder participation, complete sale of current allowances, and steady demand for future allowances.

This shouldn't come as a surprise, given California’s successful, albeit brief, history of cap-and-trade.  On the eve of the first auction, the California Chamber of Commerce filed a lawsuit to invalidate the auctions and spark doubt in the minds of the auction participants. However, this underhanded ploy was unable to achieve what it had intended, and the auction went off smoothly.

Similarly, just before the third auction last May — and on the same day as the release of the state’s plan for program expansion –Pacific Legal Foundation strategically filed a similar lawsuit on behalf of a handful of companies attempting to block the auctions. This once again did nothing to thwart the program’s success. Every current allowance was purchased come auction time at a settlement price an impressive 31% above the floor price. Almost 80% of the future allowances were also purchased, indicating the overall belief that the litigation brought against the program had no validity.

Since the third auction, the secondary market (for future sales of) carbon allowances has remained relatively stable. While there might be a bearish tone to this week’s auction with regard to price of allowances, we remain quite bullish with regard to the main goal of the program, which is to reduce carbon emissions in the most cost-effective way possible. This is happening. The program’s ambitious cap is in place, companies are already finding ways to reduce emissions, and the fact they can do it while paying around $14 per permit is also telling. It means they can grow their business without producing so much carbon that they need to surrender more allowances.

The continual success of the cap-and-trade program is evidence of a well-constructed, strong, and adaptive policy that will undoubtedly continue to achieve the ultimate goal of curbing California’s carbon pollution while growing the California economy.  The carbon market naysayers have long made claims that this program would increase the cost of business in California, decrease the number of jobs, and lead to economic disaster. But we’re seeing just the opposite. According to an analysis published by Bloomberg early last week, California’s economy is experiencing sustained and promising growth, prodded on by a strengthening housing market and decreasing unemployment rate. In June alone, more than 30,000 new jobs were created in the state, the largest increase for that month in the entire country. In the past 12 months, the unemployment rate in California has fallen by 2.1 percentage points, outpacing the rest of the country by a factor of more than three.

During nine of those months, the state has been regulated under the cap-and-trade program. It is clear that arguments mounted against the policy claiming negative repercussions on the state’s economy are completely unfounded.

California is leading the country in the number of green jobs  up and down the state, from Orange County to San Joaquin County.  As we await the results of the fourth auction, we can cite this data and be confident in a viable and efficient carbon market that’s helping to make California stronger than ever.

Posted in Cap and trade, Climate, Global Warming Solutions Act: AB 32, Jobs, Litigation | 1 Response, comments now closed

California's Cap and Trade Program After Six Months: Three Reasons the Momentum is Here to Stay

Six months ago, California launched the largest economy-wide cap-and-trade program in the world, in what many have deemed a grand experiment.  Many people watched nervously as the market unfolded, despite California having applied the lessons  learned from the growing pains of the EU ETS and from six years of crafting the market rules in consultation with the state’s – and the world’s – leading experts. Results from the first and second auctions eased those initial fears and today's results continue to affirm the presence of a strong and viable market. That's good news for California.

 

 

Auction Results

The third auction held on Thursday, May 16th offered 14.5 million 2013 allowances for sale and 9.56 million 2016 allowances. So, what happened?

Summary

Allowance year Allowances offered Allowances sold Settlement price
2013 14,522,048 100% $14.00
2016 9,560,000 78.6% $10.71

Participation: Overall participation was high, with almost 1.8 times more credits bid on than were sold. A diverse array of 81 entities were approved to bid in the auction.

Current (2013) vs. Future (2016) vintage allowances: All of the 2013 allowances sold, while almost 80% of the 2016 allowances sold, an indicator that there is solid confidence the program will still be around. Entities are keeping their options open in not buying all available allowances for use three years out, which makes sense given the multiple options for achieving compliance.

Clearing price: As expected, the clearing price for 2013 allowances was high, settling at approximately 30% above the auction price floor of $10.71. Because 2016 allowances did not sell out, their clearing price remained at the floor of $10.71.

Auction proceeds: By selling more than 10 million state-controlled allowances, California's third auction raised over $117 million – that will be used to advance the goals of AB 32, to reduce climate pollution. The budget is still being finalized for this year, but at least 25% of the auction proceeds (or $64 million to date) must benefit disadvantaged communities.

Three Reasons to the Momentum is here to Stay

  •  California’s Program is Proving to Be a Strong Model for Replication Elsewhere: Others are watching California's program closely. In a short period, a price on carbon has been established, all credits at the first three auctions were sold above the floor price, and most importantly, we have begun the process of breaking California’s dependence on fossil fuels and seen a decrease in carbon emissions.

Next year, Quebec will link with California's market – a first step towards a broader carbon market, and potential blueprint for other states and provinces to join the program.

  • Innovation: Smart companies are innovating to reduce their emissions. For example, Kroger Company uses an anaerobic digester in Compton, California to convert spoiled food to energy, generating 13 million kilowatt-hours of electricity a year. Unleashing this type of innovation accelerates the clean energy revolution and puts us further along the path to meeting the state’s aggressive climate goals.
  • Future Leadership: Today, EDF kicked off its sixth year of EDF Climate Corps, an innovative fellowship program that places grad students in companies, cities and universities to identify energy savings within those organizations. This year, 116 graduate students will be working in over 100 organizations this summer — 19 in California — including Apple, Adidas and the Los Angeles Community College System. Many of the alumni continue the work they do in corporate, public and non-profit spaces to address the largest environmental issue of our time. As Van Jones said at the Greenlining Institute Summit last week, “young people are fighting for us.”

We have solid reasons to be optimistic about California’s carbon market, and the continued growth of the clean energy economy. The skeptics aren’t staying silent, but their case is losing steam.  After all, facts are facts, and for California, today’s auction results proved once again the numbers are on our side.

 

Posted in Cap-and-trade auction, Global Warming Solutions Act: AB 32 | 1 Response, comments now closed

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.”

Posted in Cap and trade, Climate, Global Warming Solutions Act: AB 32 | Comments closed

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.

Posted in Cap and trade, Clean Energy, Climate, Global Warming Solutions Act: AB 32 | 4 Responses, comments now closed

All Systems Go for California’s Carbon Auction!

Yesterday, California took an important step towards finalizing a major component of the state’s effort to cut climate change pollution, an economy wide cap-and-trade regulation that establishes a price on carbon pollution.  Along with an expert from EDF’s economics team, Jonathan Camuzeaux, I had the opportunity to participate in the first ever public “practice” auction for the Global Warming Solutions Act cap-and-trade program – and it was a runaway success.

The goal of yesterday’s practice was to test the new online exchange where users will be able to bid on "carbon allowances" starting in November of this year.

EDF decided to submit the paperwork to be among the first users to test the new auction system since there is a lot riding on the cap-and-trade program working. Once fully operational, California’s cap-and-trade market will introduce the most cost-effective way to reduce climate pollution, protect public health, and spur clean tech innovation.

Here's how it worked:

During the practice auction we walked through a checklist of 33 tasks EDF designed to test the functionality of the system. What we found was that the auction system run by the California Air Resources Board (CARB) works much like other secure websites, such as that of an on-line bank or retailer.  Users sign in with a secure username and password and during the pre-determined open hours (bidding window), bidders place an order for as many emissions allowances as they want to buy, though only a certain number will actually be sold.  Bids from other organizations are rightfully kept private and hidden from view – making this a “sealed-bid” auction platform that is based on the system designed and currently in use in North America’s other cap-and-trade program for greenhouse gas (GHG) pollution in the Northeast.

During the bidding window, users were free to modify or rescind bids.  Once the bidding window closed all bids were final.  Since yesterday was only practice though, no money was actually exchanged or allowances sold once the bidding ended.

Our assessment:

From top to bottom, the AB 32 cap-and-trade auction system was easy and straightforward to use. Though we witnessed a few minor annoyances – such as being able to upload multiple bids at one time but only being able to delete one at a time – all of the market critical aspects were running well from our vantage point.  The next step will be for CARB to evaluate the bids and determine which are accepted and rejected based on the publically available market rules.

In all, after three hours of testing, our consensus is that the system works, and works well. California is ready to launch a new era of innovation, job creation, and economic stability. It is inspiring to see California taking climate action, and we believe success here will inspire other states, regions, and nations to develop similar climate programs.

 

Posted in Cap and trade, Climate, Global Warming Solutions Act: AB 32 | 2 Responses, comments now closed