EDF Talks Global Climate

Second California-Quebec-Ontario carbon auction sells out, showing market’s strength

 

https://www.pexels.com/photo/golden-gate-bridge-san-francisco-61111/

San Francisco Golden Gate Bridge. Photo by Juan Salamanca. 

The second California-Quebec-Ontario joint greenhouse gas allowance auction has sold all current allowances, just like the inaugural tripartite auction in February 2018. There was again strong demand for future allowances, all indicating that despite political and regulatory uncertainty from a key partner, Ontario, the market is on solid ground.

May auction at-a-glance:

  • All 90,587,738 current and previously-unsold allowances sold, clearing at $14.65, which is 12 cents above the $14.53 price floor. This is slightly higher than the February settlement price.
  • 6,057,000 of the 12,427,950 future vintage allowances offered sold at the floor price. This is 2,519,000 million less than sold at the February auction. The decrease is likely due to ongoing uncertainty in Ontario, but as these allowances are not available for use until 2021, it is still an indicator of confidence in the Western Climate Initiative market down the road.
  • An estimated $681,051,270 was raised for California’s Greenhouse Gas Reduction Fund to continue funding climate and equity priorities like urban greening, electric vehicle infrastructure, and affordable housing near public transit.
  • Ontario raised approximately $369,271,300 USD for funding public transit, electric vehicle incentives and energy efficiency upgrades.
  • Quebec raised approximately $151,353,660 USD to support the province’s transition to a green economy.

These results are encouraging because they show that despite ongoing political uncertainty in Ontario, the market is strong and stable. They also show the benefits of linkage to a larger market are real. All three linked jurisdictions have access to more trading partners through the Western Climate Initiative, which creates opportunities for even greater climate ambition. This kind of international cooperation shows that jurisdictions can have an outsized influence on global climate action, particularly at a time when federal leadership from the United States on climate is lacking.

Previously unsold allowances
The role of previously unsold allowances could also be impacting today’s auction results in two ways.

First, this is the third auction where held, or previously unsold allowances were offered for sale. These allowances increase the number of available allowances in the auction, which may contribute to keeping the price near the floor. This demonstrates the importance of that price floor. It is a central feature of the program that ensures stability of the market and the revenues.

Second, back in July 2017 the California Air Resources Board (CARB) adopted the so-called “24 Month Rule.” This establishes that any state-owned allowances that remain unsold for 24 months are either moved to the Allowance Price Containment Reserve (APCR) or retired. This has the effect of tightening the cap either temporarily (if prices were to unexpectedly jump) or permanently. The first significant retirement of allowances could happen after the August auction, so companies could be buying now in anticipation of decreased supply later.

Looking Forward
CARB is in the process of drafting a regulatory update for the cap-and-trade program post-2020. The program has been successful at reducing emissions, as demonstrated by current emissions being below the cap, even as California has grown to the fifth largest economy in the world. This emissions trend provides an important opportunity for California to continue driving increased ambition by setting a tighter post-2020 emissions cap, and continue showing that ambitious climate action can go hand-in-hand with strong economic growth.

Of course the biggest question in the linked carbon market right now is Ontario, which is having elections in June. Although two of the leading parties want to preserve the program, one party wants to end it, but would need to overcome a mountain of legal hurdles. The outcome of the June election could set up either increased confidence in the future of cap-and-trade in Ontario or lingering questions. But the results for both current and future vintage in this auction indicate that confidence is steady, and the California-Quebec-Ontario market remains a world leader in driving climate action.

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Ontario Joins California and Quebec for Largest Carbon Auction Yet: All Current Allowances Sell

Toronto, Ontario skyline. Photo by Nextvoyage from Pexels https://www.pexels.com/photo/architecture-buildings-canada-city-457937/

The results of the first California-Quebec-Ontario joint auction of greenhouse gas allowances were released today, and even with a record-high volume of allowances for sale, the current auction sold out with the price clearing just above the floor. This is an indication of the strength and stability of the expanded market.

Even more significantly, this was Ontario’s inaugural Western Climate Initiative (WCI) auction, and it is a real-world demonstration of the benefits of linking cap-and-trade programs. Ontario’s participation in the WCI brings more trading partners to the table, helps keep compliance costs low, creates an opportunity to increase ambition to reduce emissions, and models what international climate action can look like.

First, let’s do the February numbers:

  • All 98,215,920 current allowances offered were sold, including 23,743,316 allowances from Ontario, and 14,894,520 previously unsold allowances. This is the first auction including allowances from Ontario, and the second offering of held allowances.
  • Allowances cleared at $14.61, this is 8 cents above the floor price of $14.53. This is down from the $1.49 above the floor price in the November, 2017 auction. However, this is not surprising given the significant increase in allowances for sale, and the floor price itself has increased 96 cents since November.
  • 8,576,000 future vintage allowances sold of the 12,427,950 allowances offered. These allowances will not be available for compliance until 2021, demonstrating there is confidence in the growing WCI market into the future.
  • Approximately $725 million was raised for California’s Greenhouse Gas Reduction Fund. This revenue will be invested in improving local air quality, building sustainable and affordable housing near transit, and helping low-income families weatherize their homes.
  • Ontario raised an estimated $377 million USD and Quebec an estimated $155 million USD to fund their own climate investments.

So what does it all mean?

By selling out of allowances, the market quelled concerns that supply would outstrip demand due to the unprecedented number of allowances for sale. These results show that the market is stable, and with the addition of new trading partners from Ontario, the demand for allowances is healthy.

This greater availability of allowances does contribute to the price clearing just above the floor, but rather than something to be concerned about, this demonstrates the importance of that price floor. It is a key feature to keep the market and the revenues on an even keel.

Another feature of the linked cap-and-trade program is the ability to bank allowances. It is possible that allowance prices will rise after 2020, and companies are planning ahead. Some may be buying the limited number of allowances they are allowed to save now, when they are less expensive, supporting the strong demand we saw in the February auction.

Every allowance that is banked represents one ton of carbon emissions that are not released into the atmosphere now. Greater emission reductions sooner mean less cumulative emissions, and that is a win for the environment. Lower emissions now also creates an opportunity for California to consider tightening the cap in the coming years. This would drive even deeper emission reductions as the state looks to the ambitious 2030 target.

For Ontario, these results also demonstrate some of the benefits of participating in a larger carbon market. Ontario’s last solo auction did not clear, perhaps because of partisan campaign promises to abandon cap and trade and leave the Western Climate Initiative. Even with demand potentially dampened in Ontario due to this uncertainty, all of Ontario’s allowances sold to buyers in the larger market. This provides proceeds that can fund Ontario’s transition to a clean economy. We can’t know what would have happened in an Ontario-only auction, but this seems a clear example of the stability that joining a larger market can generate.

We often talk about California and Quebec setting an example on climate action in the face of the Trump Administration determination to go backwards. Today’s results demonstrate that the Western Climate Initiative has gained a valuable new partner in Ontario, and that this partnership is succeeding.

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California Adopts Climate Game Plan for 2030

Cap and trade is like the goalie – it’s there keeping California’s emissions in check even if it’s the state’s other policies that are scoring most of the goals. Photo: Wikimedia

By Katelyn Roedner Sutter and Erica Morehouse

Today the California Air Resources Board (CARB) adopted the 2017 Climate Change Scoping Plan, the strategy for achieving California’s 2030 greenhouse gas emissions target. Developing and updating this Scoping Plan is a process pioneered by California that provides a game plan of how the state intends to meet its climate goals with an increased focus on air quality.

The cap-and-trade program continues to be a centerpiece of the current Scoping Plan because it allows the state to put a firm limit on overall carbon emissions. This is essential as the state charts a path to an ambitious 2030 target. The Scoping Plan lays out the blueprint for California’s overall climate policies. Cap-and-trade design details will be further developed in future ARB rulemakings; EDF will be deeply engaged on details like setting a high enough price ceiling and setting the level of the cap with a focus, as always, on environmental integrity.

Cap and trade is a team sport in California: focusing on who makes the goals is missing the point

The role of cap and trade is an important one: assuring that California doesn’t exceed the emissions limit it has adopted into law. California has a variety of policies in place to meet its climate targets, which means there are multiple programs acting to lower the same emissions. But cap and trade is the policy that will ensure California reaches its climate target by setting a firm limit. If other policies do not do as much as anticipated to reduce emissions, cap and trade will make up the difference. The flip side is that if other policies are driving down emissions faster than expected, cap and trade may need to do less of the work to reduce emissions.

I’m a hockey fan, so here is one way to think about it. A goalie on a hockey team isn’t failing when they aren’t the one who scores the winning goal. They are succeeding when they are preventing the other team from scoring. Cap and trade is like that goalie – it’s there keeping California’s emissions in check even if it’s the state’s other policies that are scoring most of the goals. But cap and trade is also a versatile athlete, it can play the forward position when needed. California has designed its climate policies as a team sport, though, and whatever position cap and trade plays, it’s a critical member of the team as today’s Scoping Plan recognizes.

Beating reduction goals is a good thing and an opportunity

California’s emissions are declining and the state is on track to beat its 2020 goal. There’s discussion about the implications of having emissions significantly below the cap, but rather than being a concern, we see this as a sure sign of success. More emission reductions earlier in the program is good news for the environment. It’s also an opportunity for California to consider cutting emissions even more by trimming the overall number of allowances it makes available in the coming years as the state looks to the ambitious 2030 target.

Today’s adoption of the 2017 Scoping Plan helps ensure the ongoing success of California’s team of climate strategies, with cap and trade as the check on carbon pollution. Together, California’s suite of climate and air policies can keep driving down global warming pollution while improving the health and environment across the Golden state.

Posted in California / 1 Response

U.S. subnational leaders enjoy banner event at COP 23

America's Pledge event at COP23 | Photo: UNClimateChange

COP 23 has been a banner event for subnational actors, and especially for California. Between events and breaking news, our EDF California team has enjoyed visiting informally with representatives from around the world.

One theme from these conversations is “we’re so glad you are here!”

The presence of American states and NGOs, and the leadership of states like California, has not gone unnoticed, especially when the absence of U.S. leadership on climate is so obvious.

Some have asked if we have received backlash from the United States about being here (so far so good!), and there’s universal enthusiasm for the US Climate Action Center (or “igloo” – nicknamed both for the big white tents and chilly temperatures).

It is clear from these announcements and conversations that the leadership of California is more critical than ever.

Here’s a quick round-up of key state-level news:

America’s Pledge – California Governor Jerry Brown and former New York City Mayor Michael Bloomberg shared the first report of their joint initiative, America’s Pledge. A reaction to the United States’ dismissal of the Paris Agreement, this project demonstrates the power of collective action and aims to spur greater climate ambition. If they were one country, the signatory cities and states would have the third largest GDP in the world, and would be home to one-third of the American people. This is a significant rejection of the Trump Administration’s rhetoric on climate, and a testament to Governor Brown and Mayor Bloomberg’s leadership.

Under2 Coalition Signing – A joint initiative of Governor Jerry Brown and the German state of Baden-Württemberg, the Under 2 Coalition commits ambitious states and regions around the world to making commitments on emission reductions consistent with the Paris Agreement and to keeping global warming below 2°C. Virginia became the latest partner in the Under 2 Coalition, solidifying its climate leadership and the state continues to works toward greater electric vehicle infrastructure and reducing carbon emissions from the power sector.

California’s Progress and Promise – Governor Brown, CalEPA Secretary Matt Rodriguez, Assembly Member Cristina Garcia and others have each had speaking engagements at COP 23, and across them all two themes emerge. First, California is leading the way on reducing emissions, cleaning up pollution, and striving for equitable climate policy. But the second theme is that there is much more to do. While celebrating these achievements, the state has further to go de-carbonizing the economy and improving local air quality.

California-Acre Luncheon – One of the most exciting things about COP23 is the opportunity to build connections across countries and cultures on issues of mutual importance. The California Legislative Delegation had the opportunity for lunch with the delegation from the state of Acre, Brazil. They discussed deforestation and its impact on the climate and local communities, as well the need for global partnerships to go further and faster stopping climate change.

2018 Global Climate Action Summit – Want your own COP-like experience? Governor Brown invited attendees to join him and sub-national leaders from around the world at the 2018 Climate Summit in San Francisco! Described as the “COP for subnationals,” one key goal is to establish a San Francisco agreement on sub-national climate action. Businesses, cities, states, investors, and civil society will explore how much more we can do together on climate action, learn from each other, and build positive momentum for COP 24 in Poland.

It is clear from these announcements and conversations (not to mention Governor Brown’s rock star status at COP 23) that the leadership of California is more critical than ever. This is especially true now that the United States is the sole country opposing the Paris Agreement, now that Syria and Nicaragua have joined the agreement.

California’s role as climate champion, success in reducing greenhouse gas emissions while maintaining economic prosperity, and concerted efforts for greater climate equity are all stories we are proud to be sharing with the rest of the world.

Posted in Bonn, California / Leave a comment

California to showcase subnational climate action at COP 23

This week, signatories to the United Nations’ Framework Convention on Climate Change (COP 23) meet in Bonn, Germany to discuss implementation of the Paris Agreement. While much of the domestic news will focus on the Trump Administration’s “break-up” with the Paris Agreement, there will also be significant focus at the COP on actions of sub-nationals: cities, states, and regions around the world who are stepping up to address climate change.

California is a leader in sub-national climate action, and Governor Jerry Brown has been designated Special Advisor for States and Regions to COP 23. He will be welcoming new partners in the Under2MOU: a coalition of 188 jurisdictions around the world acting to keep global warming below 2 degrees Celsius. Governor Brown was also instrumental in creating the U.S. Climate Alliance, a bi-partisan group of states committed to reducing greenhouse gas emissions consistent with the goals of the Paris Agreement, even if Washington, DC tries to walk away.

At the U.S. Climate Action Pavilion at COP 23, Governor Brown, together with Michael Bloomberg, will release a new report on November 11th highlighting the progress of U.S. states, cities, and businesses in addressing climate change. He will also be participating in other events with the “We Are Still In” effort to promote American climate action and leadership. These are important examples of sub-national action that increases the ambition of other regions in reducing greenhouse gas emissions.

To illustrate California’s state-level achievements, Environmental Defense Fund has two new publications for COP 23. “California’s Cap-and-Trade Program Step by Step” explains how California set up its cornerstone climate policy, cap and trade, in an easy-to-follow 10-step formula. Other sub-nationals as well as interested countries will be able to learn from the state’s experience in developing their own emissions trading system.

Cutting Carbon and Growing the Economy” highlights the progress California has made since cap and trade began in reducing emissions, strengthening the economy, and ensuring all California residents benefit.

Reducing emissions and growing the economy go hand-in-hand. The state is on track to beat the target of reducing greenhouse gas emissions to 1990 levels by 2020 and the state’s Gross State Product has increased more than 16% since 2006.

At the same time, California’s job growth has outpaced the nation, and the growth in “clean jobs” has dwarfed overall job growth. Revenues from cap and trade mean over $5 billion is being invested in communities across the state. This includes funds directed toward air quality and other environmental justice issues in the most polluted neighborhoods.

Together, these publications demonstrate the progress California has made in addressing climate change. In partnership with the California State Delegation to COP 23, EDF will illustrate to the world that the Trump Administration doesn’t have the last word on American climate action. States like California are leading the way and are encouraging other sub-nationals to join them in ambitious climate action.

For further questions please reach out to any of EDF California’s delegation heading to Bonn this week: Quentin Foster, Erica Morehouse, or Katelyn Roedner Sutter.

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