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