This post was co-authored by Jonathan Camuzeaux and Derek Walker.
As we pointed out in August, no news is good news when it comes to California’s cap-and-trade quarterly allowance auctions, which have been running effectively and without hiccups since November 2012. That’s right, last Tuesday’s auction marks the three-year anniversary of the program’s first auction, and the fifth time that California and the Canadian province of Quebec have conducted a joint auction. Time flies by when you settle into a routine, and another set of consistent, stable results indicates once again that California has a strong, well-functioning cap-and-trade program.
Steady results equal a healthy carbon market
Over 75 million current vintage allowances – which covered entities can use for compliance as early as this year – were offered at last Tuesday’s auction, and 100% of these allowances were purchased at a price of $12.73. This price, known as the settlement price, is 63 cents above the floor price set by the California Air Resources Board (CARB) for this auction, and is in line with previous auctions where allowances have cleared at prices slightly above the floor. In the advanced auction for 2018 vintage allowances – which can only be used starting in 2018 – over 10 million allowances were offered and 100% of these were purchased at a price of $12.65. Read More
Every year at your annual checkup, the doctor measures your blood pressure, listens to your heart, and asks you to take deep breathes while moving around her stethoscope. Through these tests, your doctor is gaining insight into your overall physical health and monitoring for anything unusual. Typically, no news is good news when it comes to this annual physical. The same goes for California’s cap-and-trade carbon market, which has been up and running smoothly for the past two and a half years.
Instead of annual check-ups, California’s cap-and-trade program has quarterly auctions – the results of which tell us a lot about the health of the overall program and the progress the state has made towards its greenhouse gas reduction targets. Consistent and stable results from one auction to the next are a positive indication that the state has a functioning, well-oiled program. In other words, no news is good news.
Last Tuesday, the California Air Resources Board (CARB), in partnership with the environmental ministry of the Canadian Province of Quebec (MDDELCC), held one such quarterly auction for cap-and-trade carbon allowances, during which individuals and companies had the opportunity to bid for a total of approximately 83.9 million allowances. Today, CARB and MDDELCC released the results and they reveal yet another successful sale of allowances to the market. Read More
By: Erica Morehouse, Senior Attorney, and Katie Hsia-Kiung, High Meadows Research Fellow
What do we call regularly occurring activities? A routine. Which, let’s face it, can sometimes feel tired and uninteresting. But other times, getting into a routine can mean good things. When you get an all-clear at a check-up with the doctor or dentist, you’re not disappointed, right? Well, here’s another example of a smooth routine: as of May 28, we’ve now chalked up 11 auctions that have taken place as part of California’s cap-and-trade program. And the latest results tell us yet again that a good routine is just what the doctor ordered.
The auction results released today reflect a stable and healthy carbon market, in line with results we’ve seen consistently over several of the past quarterly auctions. (Click here for background on how the auctions work under cap-and-trade). One hundred percent of the allowances offered – which can be used for compliance as early as this year – were sold in the current auction, at a price of $12.29, 19 cents above the minimum floor price set by the California Air Resources Board (CARB). This is only eight cents above the price per allowance seen at the last auction, and the lack of any significant price movement from auction to auction is indicative of the stability and maturity of the market. It also shows that companies are becoming more comfortable with the requirements of the cap-and-trade regulation. To date, none of the current vintage allowances offered in the California auctions have gone unsold.
Growing up can be tough. But we all remember how good it felt to pass an important exam or achieve one of our major goals – whether it be getting a driver’s license or graduating from middle school. California’s landmark cap-and-trade program was just recently put to the test after undergoing a substantial growth spurt, more than doubling in size to include transportation fuels, California’s biggest source of greenhouse gas pollution. To account for this increase in the number of businesses and emissions capped by the program, more than three times the amount of allowances were offered in the cap-and-trade auction held last week as compared to the one before it. This was also the second auction since California began holding joint auctions with Quebec, the Canadian province that has a similar cap-and-trade program in place.
Auction results released earlier today indicate that the strong foundation built over the first two years of the program allowed the market to easily pass this important growth test, remaining stable and strong even in the face of a considerable change in allowance supply and shifting market dynamics.
So what happened in this auction?
Of the 73.6 million current vintage allowances offered in this auction, 100% were purchased at a price of $12.21. This is 11 cents above the floor price and the settlement price at the previous auction, and is consistent with historical trends of prices slightly above the floor. In the advanced auction for 2018 vintage allowances, over 10.4 million allowances were offered and 100% of these were purchased at the floor price of $12.10. These allowances can only be used starting in 2018 and the fact that there was a high level of demand for them once again reflects confidence in the future strength of the market. These companies are making financial investments that are consistent with the belief that the market will be in existence well into the future, as was strongly signaled through the Governor’s and the Legislature’s prioritization of long-term emission reductions. Read More
The holiday season is often considered a time to stop and take stock of the things that we are thankful for, and to celebrate the accomplishments of the past year. Today, California and Quebec have one more thing to celebrate: the successful completion of their first-ever joint cap-and-trade auction, which marks the last of many steps to fully harmonize the two carbon markets. Auctions are held quarterly and are opportunities for companies regulated by cap-and-trade and others to electronically bid on and purchase carbon allowances (permits to emit one metric ton of greenhouse gas emissions).
California and Quebec carefully prepare for full linkage of their programs
California and Quebec worked closely to design their cap-and-trade programs to ensure that the essential mechanisms and stringent targets were in place to allow for linkage. The jurisdictions both started their cap-and-trade programs on January 1, 2013, and formally linked their carbon markets a year later. At that point, carbon allowances originating from Quebec’s program could be purchased and used by a California company and vice versa. Until the most recent auction, the two jurisdictions held separate auctions, allowing time to update the auction system to handle bidding from multiple jurisdictions with different currencies, different time zones, and different requirements for the minimum allowable bid. This process of careful preparation culminated in a practice joint auction held at the beginning of August, which went smoothly according to reports from the California Air Resources Board (CARB), the regulatory agency responsible for overseeing the implementation of California’s cap-and-trade program.
Sustained strength of linked program reflected in results of first joint auction
The first real joint auction took place last Tuesday, after a great deal of preparation and some technical difficulties that caused a few days of delay. During this auction, companies from both California and Quebec bid together on the same collective pool of allowances, aligning allowance price over the two programs. The results of this auction were released today and revealed healthy demand in the linked market for cap-and-trade allowances. 100% of the current 2014 vintage allowances for sale in this auction were purchased by bidders at a price of $12.10, while 100% of the 2017 future vintage allowances offered were purchased at a price of $11.86.
Bigger is not always better, but a recent cap-and-trade auction in Quebec gave us one example of why it may be the case for a combined California and Quebec carbon market.
The linkage of Quebec and California’s markets has been watched by many around the world, and the start of joint auctions in November 2014 is the final step in full linkage. Last month, however, both jurisdictions were busy conducting their last solo auctions. While the results of the California-only auction were as anticipated, the Quebec-only auction yielded both expected and less expected results.
What was not a surprise was that not all (83%) allowances offered for sale were purchased. Unlike in the California program, Quebec entities do not have to surrender any allowances this coming November. With their first deadline not until November 2015, Quebec entities have been understandably slow to enter and be active in the market. Another positive and not so surprising takeaway from Quebec’s last auction is high demand for 2017 allowances, a strong sign that Quebec companies are confident in this market’s future health.
More surprising to observers in Quebec’s recent auction, however, was that a higher percentage of 2017 vintage allowances sold than 2014 vintage allowances. Current 2014 vintage allowances can be used for compliance at any time, while 2017 vintage allowances can only be used starting in 2017. This longer useful life should make 2014 allowances more valuable and thus in higher demand, but this did not appear to be the case in the recent auction. Read More