California-Quebec August auction results reflect a secure cap-and-trade future

Photo credit: Flickr – johrling

Strong results from the California-Quebec August auction released today reflect that the future of cap and trade is secure in California.

The August 15 auction saw increased demand and prices for carbon allowances, which will now be usable at least through 2030. These strong results are particularly significant because the auction is the first since a California appellate court cemented the legality of the program, and since the California Legislature extended the state’s cap-and-trade program with the two-thirds vote. This vote protects the program from the type of legal challenges that artificially depressed demand for allowances in 2016.

August auction by the numbers

  • Over $640,000,000: Approximate amount raised for California’s Greenhouse Gas Reduction Fund in this auction.  This is an all-time high for California.
  • $14.75: Price at which current vintage allowances sold. This is $1.18 above the minimum price of $13.57 at which participants were allowed to bid.  This is the largest premium above the minimum price that the auctions have seen since California and Quebec started holding joint auctions. (However, one California auction in 2013 did sell allowances for $14.00 which was more than $3.00 above the minimum price at the time.)
  • 63,887,833: Number of “current vintage” allowances offered and sold at this auction by California, Quebec, and California utilities, and which are available for immediate use.
  • 9,723,500: Number of “future vintage” allowances offered and sold at this auction, which will not be available for use until 2020. These allowances sold for $14.55 a record premium above the “floor price” also $13.57.  The last auction to sell all offered future vintage allowances was in November of 2015.

This is what certainty looks like

Until recently, two big question marks were hanging over California’s cap-and-trade program. These were encouraging auction participants to buy only the allowances that they absolutely needed at the four previous auctions – and led to only modest auction results.

The certainty provided by the resolution of these concerns contributed a great deal to the strong August auction results. Here’s how:

  1. California court upholds cap-and-trade program: A California appellate court first held in May that the cap-and-trade program is not a tax, overturning a lengthy legal battle spearheaded by the California Chamber of Commerce. After this news the May auction saw a significant rebound. This confidence was supported in June when the California Supreme Court declined to review the appellate court’s decision, cementing a win for the state of California (and EDF and NRDC as intervenors) after four and a half years of litigation.
  2. California legislature extends cap-and-trade program to 2030: California’s ambitious 2030 climate target was cemented into law in 2016 but the current cap-and-trade regulation only ran through 2020. ARB was set to extend the program, but legal questions meant that without legislative action the post-2020 program could have been plagued by the same type of challenges that had affected prices in 2016. A change to the definition of a tax in 2010 meant that the California Chamber of Commerce and others might have had gotten a second bite at the litigation apple. But on July 17, 55 Assembly members and 28 Senators came together across party lines to pass legislation extending California’s cap-and-trade program to 2030, ensuring the program could move forward unimpeded.

Today’s results affirm the courage of the votes taken to secure the future of cap and trade in California. Carbon prices now more directly align with expectations about the true cost of reducing carbon pollution through 2030. That clearer and more accurate price will send a signal throughout California that will drive the action needed to meet the state’s climate targets and show others around the world what is possible.

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