Author Archives: Emily Reyna

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

By | Bio | Published: May 21, 2013

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.

 

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

By | Bio | Published: February 19, 2013

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

By | Bio | Published: November 12, 2012

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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All Systems Go for California’s Carbon Auction!

By | Bio | Published: August 31, 2012

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.

 

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