Selected category: United States

California carbon auction sells out after auctions upheld by appeals court, allowances sell above the floor

Tower Bridge in Sacramento. Photo: public domain via pixabay.

Auction results from the May California-Quebec carbon auction showed increased demand after a California Court of Appeal upheld the legality of California’s auction design last month.

These auction results should send a clear message to legislators that California has a strong carbon market design that can weather legal challenges and the inevitable bumps of the political process.

They also indicate it’s high time to extend, adapt, and strengthen the cap-and-trade program as the backbone of California’s effort to meet its ambitious 2030 target – something the California legislature has an opportunity to do by June 15 in concert with the governor’s budget.

Results from the May 16 auction

  • The auction offered more than 75 million current vintage allowances (available for 2017 or later compliance) and all of them sold at a price of $13.80, 23 cents above the minimum floor price. This is the first time the auction has cleared above the floor since November of 2015.
  • Allowances held by the utilities, Quebec, and ARB sold with over $500 million expected for California’s Greenhouse Gas Reduction Fund (GGRF).
  • Almost 10 million future allowances were offered that will not be available for use until 2020 or later; a little over 2 million of those allowances sold. This is significantly higher than the 600,000 that sold in February but future allowances tend to have the most variability in demand.

Demand increased significantly from February, but why?

1. The market has clearly reacted positively by increasing demand in the wake of the Court of Appeals ruling. The appeal to the California Supreme Court and uncertainty about cap-and-trade’s future after 2020 may still be impacting market behavior, however.

2. Regulated businesses need a certain number of allowances to cover their emissions. Demand for allowances is in part driven by this simple reality, and since businesses have been laying low the last few auctions, it makes sense they would need to buy allowances this quarter. Economist Chris Busch describes why these “market fundamentals” led him to predict that at least 50-65 million allowances would be sold in this auction.

3. The stabilizing forces built into California’s program prevent big price swings when the market reacts to new developments. We can see this through California’s private secondary market, which shows daily allowance prices, and acts as a kind of barometer for how and whether the market is reacting to particular events. For example, after the California Court of Appeal on April 6 upheld the legality of California’s auction design, prices on the secondary market went up by 54 cents. When the California state senate on May 1 introduced SB 775, which would have overhauled the current cap-and-trade program and eliminated the auction allowances after 2020, the market dipped by roughly 20 cents – but recovered May 10 after the bill did not come up for a vote as anticipated. This means price shifts have been very small – mostly less than one dollar.

What will happen in the auctions if the legislature extends the cap-and-trade program?

An extension of the cap-and-trade program would lead to more robust demand for allowances — leading to a rising allowance price that better reflects the cost of a ton of carbon pollution reductions, taking into account the 2030 target that was put into law last year. With the price likely rising above the floor, we would expect to see future auctions being fully subscribed — translating into significantly more revenue for the GGRF to invest in projects that reduce carbon pollution.

Some observers have painted a dire picture of allowance prices spiking overnight. But that’s not how we’ve seen carbon markets behave in the past — and there’s no reason to think it will happen now. Instead, we’d expect a gradual strengthening of the allowance price over time, as compliance entities weighed the current price of allowances against the anticipated cost of reducing emissions in the future as the cap becomes more ambitious.

What’s more, the system already has a number of design features in place to protect against such a surge in prices, including offsets, the ability to draw on allowances “banked” from previous years, and a reserve pool of allowances (the “allowance price containment reserve”) that would be released into the market if prices rise high enough.

The governor is pushing hard for a deal on cap and trade by the budget deadline of June 15, so I’m hopeful the next auction will give us much to celebrate.

Also posted in California, Emissions trading & markets| Leave a comment

What to expect from Ontario’s first carbon auction

This post originally appeared on ipolitics.ca.

Air pollution in Toronto. Photo credit: Flickr/ United Nations Photo

On Apr. 3, the Ontario government will announce the results of its first ever auction of pollution permits under its new cap-and-trade program aimed at cutting the emissions that contribute to global warming. As historic and newsworthy as the event may be, it would be wrong to read too much into the results as a measure of the success of the overall environmental program.

Ontario’s cap-and-trade program, launched on Jan. 1, requires emitters such as power plants to surrender a “carbon allowance” for every ton of pollution they produce. The ‘cap’, or limit on emissions, will be reduced over time, ensuring continuing reductions of emissions. The ‘trade’ — allowing emitters to sell excess allowances on the market — provides emitters with a flexible, cost-effective path to going green.

The Ontario government will auction many of these carbon allowances, as they did this month, and the new climate law requires all proceeds to be reinvested in public transit, green technologies and other environmental endeavors that reduce carbon pollution.

The actual auction was held Mar. 22, and offered for sale a total of 28 million allowances at about $17 each. Theoretically, that means the final result announced in April could be hundreds of millions of dollars raised by the province for investments in green projects.

History suggests the actual sum could be considerably less.

Results from recent California and Quebec auctions, which could influence Ontario’s results, have varied widely; those auctions sold 88 per cent and then 18 per cent of available allowances in the two most recent auctions.

There’s a number of reasons why cap-and-trade programs can get off to a relatively slow start.

Relatively soft auction results in the early stages of a cap-and-trade program may simply indicate that the system is working exactly as it was designed.

In the initial stages, for instance, many polluters can find relatively simple ways to cut their emissions enough to meet their cap for the year and thereby avoid having to buy allowances. Or, since they have a few years before they are required to turn in the required allowances, they could simply wait to purchase them.

Many allowances also will be provided to businesses for free — especially those energy-intensive businesses that have competitors in other jurisdictions not subject to similar climate regulations.

Relatively soft auction results in the early stages of a cap-and-trade program may simply indicate that the system is working exactly as it was designed — by allowing industries to make a gradual transition to lower emissions without causing undue economic upheaval or job losses.

Cap-and-trade programs already are showing that economic prosperity and ambitious climate action can go hand in hand. Ontario’s system is modeled after the joint program between Quebec and California, which have both seen carbon pollution decline even as their economies thrived in their first four years of cap-and-trade. In fact, in the first four years of California’s program, emissions under the cap declined while jobs were added faster than the national average — and California’s GDP grew to make the state the fifth largest economy in the world.

The Ontario scheme is designed to achieve similar environmental and economic results by easing consumers, businesses and industries gradually into the new cap-and-trade regime which will put the province on track to a low-carbon economy.

Ontario was able to develop and implement a rigorous but flexible emission-reduction program in less than half the time it took California and Quebec, an example of how climate giants can spur faster and more ambitious action by working together.

A significant feature of Ontario’s plan is that it includes a proposed linkage with Quebec and California’s market. That would mean carbon allowances could be used interchangeably in all three locations, and that Ontario would begin auctioning allowances at the same time as California and Quebec, who held their last auction in February.

Ontario has a rich history of environmental innovation, and its cap-and-trade program is poised to be a key component of its larger climate policy.

As tempting as it may be to judge the Ontario cap-and-trade program by the revenues it will generate, by far the more important measure of success is what it will do for the environment.

Also posted in Canada| Leave a comment

Mexico's international climate leadership and collaboration is more critical than ever

love-earth

Photo credit: Sweetie187/Flickr

The stark realities of the environmental policy challenges we are likely to face, in the United States and internationally, have not faded in the month since the U.S. election.

During his campaign, I and many others were deeply troubled by the statements President-elect Trump made about Latinos, African-Americans, women, people with disabilities, immigrants and other religious groups, as well as our critical relationship with Mexico. He called climate change a “hoax”; vowed to “cancel” the Paris climate agreement; and pledged to undo the Clean Power Plan, the regulation that would put the first-ever limits on carbon pollution from power plants in the United States. Just last week, he selected a climate denier, and sworn opponent of bedrock protections for clean air and clean water, as his pick to head the U.S. Environmental Protection Agency.

But in the days following the election, I have been heartened by messages of empathy and solidarity from my friends and colleagues from around the world. These messages remind me that as a community we have strength – and that we can and will keep pushing forward, together. Our resolve is greater than ever, and there are many reasons for hope.

First, no one country can solve climate change alone – and thus no one election, in any country, can put the solution out of reach. A single president cannot reverse the hard-won progress of the world’s countries, who came together in 2015 to craft the historic Paris climate agreement, and met again last month in Marrakesh to continue putting that plan into action.

Mexico has taken on global leadership on the issue of climate change – pledging ambitious reductions to its national emissions, and forging collaborations in North America with the state of California, and the provinces of Quebec and Ontario, among other international partnerships. Mexico’s leadership and international collaboration now play an even more critical and influential role in the global effort on climate change, and particularly in North America. And Mexico will not be alone in moving forward to develop a low carbon economy – emissions giants including China have pledged they will continue to move forward with their plans to reduce emissions, and use market-based mechanisms to get there.

The transformation underway toward clean energy and low-carbon economies is unstoppable.

Second, the transformation underway toward clean energy and low-carbon economies is unstoppable. In 2014, the U.S. clean energy market, which includes wind turbines, solar panels, home energy storage and energy efficiency, grew by 14 percent – at nearly five times the rate of the overall economy – to nearly $200 billion. And hundreds of major businesses just called on the new Administration to meet US carbon pollution reduction targets, invest in clean energy, and implement the Paris climate pact.

Even beyond the Paris Agreement, the world is beginning to shift. The reform and modernization of Mexico’s power sector, as one example, has the potential to transform its economic and energy future in way that is both more profitable and more sustainable.

California has been leading the way on climate change and energy innovation in the United States – and working in active partnership with Mexico on climate change since 2014. California’s also forged a collaboration among more than 130 subnational governments representing more than half of the world’s GDP through the Under 2 MOU.

And let us not overlook that two-thirds of Americans want reducing carbon pollution to be a priority and over 80% of Americans support boosting clean energy sources such as wind and solar.

Our work in Mexico has all the key ingredients we need to succeed. Our partners in Mexico, from government to civil society, are committed – as are we – to working in partnership to put our collective knowledge, expertise, creativity, and will to the task of fighting climate change – together.

I know that I will, and my organization will, continue to face and fight the battles ahead for protecting our health, the climate, and clean air, healthy ecosystems, and clean water – and there will, no doubt, be many.

I am extremely proud of my work and I am fortunate to come to work every day and be a part of the global effort to solve one of the most formidable environmental challenges of our time, and to work in partnership with dedicated leaders and committed citizens of Mexico.

Also posted in Mexico| Leave a comment

With joint action plan, US and Mexico walk the walk on energy and climate

Lea aqui la version en Español.

When President Obama joined Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto in Ottawa last month at the North American Leaders’ Summit to announce ambitious goals on climate and clean energy, EDF President Fred Krupp said that “implementing them will be the true measure of success.”

Today, the United States and Mexico took important next steps towards successful implementation, announcing new details on how the two countries will work together to:

  • curb emissions of methane, a potent greenhouse gas responsible for a quarter of today’s warming, by reducing emissions from the oil and gas sector by 40-45% by 2025;
  • expand clean energy to meet the goal of 50% electricity generation from zero-carbon sources by 2025;
  • promote residential, commercial, and industrial energy efficiency; and
  • align methodologies for estimating the social cost of carbon, a key input into understanding the benefits of reducing carbon pollution.

If the June announcements were the poetry, today’s announcements were the prose — but they are no less important for it. The work plans, workshops, technical dialogues, and regulatory processes laid out in today’s announcement are the nuts and bolts of effective governing. Just as important, the concreteness and specificity of these plans give a clear signal of the countries’ strong commitment to getting these things done.

The two countries also reaffirmed their commitment to work together in the International Civil Aviation Organization (ICAO) for the adoption of a robust market-based measure to limit emissions from international aviation, and to join the Paris Agreement and support its entry into force this year.

Today’s announcement provides yet another illustration of the growing importance of North American leadership on climate and clean energy — one of many recent bright spots in climate action.

The concreteness and specificity of these plans give a clear signal of the countries’ strong commitment to getting these things done.

And it’s not hard to see why. Canada and Mexico are two of the U.S.’s top three trading partners. By advancing together, the three countries can reap the full economic and environmental benefits of a clean energy economy, creating opportunities for clean energy entrepreneurs, low-carbon investment, and sustainable economic development across the continent.

Today’s announcement is a particularly strong signal from Mexico, which — with a well-earned reputation for climate leadership on the international stage — must still demonstrate how domestic policy will match those ambitious targets. Indeed, Mexico itself has much to gain from following through. With a historically oil-dependent economy, the country is already feeling the fiscal pinch of rock-bottom global oil prices. Combine that with the enormous untapped potential and newly opened market for renewable energy generation, and pathway is clear to major opportunities for economic growth through low carbon energy and efficient production.

The path to shared global prosperity is a low-carbon path. By moving from the bold type of headline announcements to the finer print of detailed workplans, the U.S. and Mexico just took a meaningful step in that direction.

Also posted in Mexico, News| Leave a comment

A bright spot amid Brexit? Growing momentum for global climate action.

27369863763_7fef3b1ec2_o.000

A new era of climate leadership: Mexico, Canada, and the U.S. announced major joint commitments on climate and clean energy on June 29, 2016. Image Source: Presidencia de la República Mexicana

Last week’s vote by the British to leave the European Union has triggered a crisis in political leadership, thrown financial markets into turmoil and prompted eulogies for the European project – even as the ultimate consequences of the vote remain uncertain.

Against that backdrop, a bit of good news may be welcome. And it comes from an unlikely quarter: climate action.

That may sound surprising at first since climate change was hardly a high-profile issue in the Brexit campaign. Voting on the referendum reflected concerns about inequality, immigration, globalization, multiculturalism and an out-of-touch political elite.

Even so, the prospect of the United Kingdom’s departure has raised concerns about impacts on climate and energy policy, including possible delays in finalizing the EU’s 2030 emissions target.

But whatever the implications may be for Britain and the EU, one thing is clear: Brexit can’t derail the overwhelming global momentum on climate action that produced the Paris Agreement.

The Paris Agreement: Strength in numbers

A British exit from the EU would not have any effect on the formal architecture of the agreement, which was approved last December by more than 190 countries and has been signed by 177 – including each of the EU member states.

Given that overwhelming support, the agreement may very well enter into force this year – something that will happen once at least 55 countries representing 55 percent of global emissions formally join the agreement.

To date, 50 countries representing more than 53 percent of global emissions have formally joined or committed to join the agreement this year — closing in on the threshold of 55 countries and 55 percent of emissions needed for the agreement to enter into force. As a result, the agreement may well enter into force as soon as this year, even without the EU (which was not expected to join the agreement this year in any case).

This signals a remarkable shift. A decade ago, Europe was the world’s indispensable leader on climate action – and even temporary uncertainty about the pace of progress in the EU would have had repercussions around the globe.

The Paris Agreement, however, was the culmination of a paradigm shift away from a model of “top-down” climate action concentrated in a handful of countries, and toward more a more decentralized and inclusive approach.

As climate action has become much more broad-based, it has also become more resilient.

Climate leadership beyond the EU

That is not to say that leadership on climate from both the U.K. and the EU is not vital; it is, and will continue to be. Taken as a whole, Europe is still the world’s third-largest emitter. It remains a powerful and valuable voice for ambition.

Fortunately, political support for climate action in the region remains high, with 60 percent of Europeans saying global warming is already harming people around the world.

But we are long past the days when climate progress depended on one bloc of countries. Just consider this:

  • The leaders of the three North American countries met today to announce greater cooperation on climate change – including major new commitments on clean energy and on methane emissions from oil and gas.
  • Under the leadership of President Obama, the United States is now a global leader on climate action, with U.S. emissions in 2014 at 9 percent below their 2005 level, and an ambitious target of reducing emissions between 26 and 28 percent by 2025, relative to 2005.
  • President Xi Jinping of China has made tackling climate change a priority, with a commitment to ratify the Paris Agreement this year, a pledge to peak China’s emissions by 2030, if not before; and a plan to institute a nationwide emission trading program as early as next year.
  • The unprecedented bilateral cooperation between the U.S. and China, culminating in the joint announcements on climate change made by Presidents Xi and Obama in November 2014 and again in September 2015, were a crucial step in laying the foundation for success in Paris.
  • Brazil – although currently engulfed in political turmoil of its own – has reduced emissions over the past decade more than any other country, thanks to the enormous success of its Amazon states in curbing tropical deforestation.
  • India, where the moral imperative of poverty alleviation remains paramount, is committing to renewable energy and experimenting with new models of low-carbon development.

Other factors driving momentum

Underlying these country-level shifts are more fundamental drivers. The impacts of climate change are becoming increasingly more visible, in record temperatures and extreme weather events.

A clean energy revolution is underway: Wind power is competitive with coal in much of the world even without subsidies, the cost of solar panels has dropped 75 percent in less than a decade and new technologies for how we use and store energy more efficiently are transforming markets.

Meanwhile, leading companies are stepping up by reducing their carbon footprints, greening their supply chains and calling for policies such as a price on carbon.

In short, leaders around the world have come to the realization that the path to shared global prosperity is a low-carbon path.

That makes the politics of climate action more resilient now than they ever have been before. And that is good news to keep in mind in these uncertain days.

This post originally appeared June 29 on EDF Voices.

Also posted in Europe, News, UN negotiations| Leave a comment

6 successes from California and Quebec’s third year of cap and trade

Source: Flickr

Photo Source: Flickr / JoeBehr

The joint carbon market in California and Quebec holds its first carbon market allowance auction of 2016 today.

The auction offers a good opportunity to reflect on some of the notable successes of the market in 2015.

The California-Quebec market is one of the prime examples of a successful carbon market that many countries will look to as they consider how to meet the commitments made in Paris, where countries successfully negotiated an ambitious climate deal that outlines multiple pathways for nations to use markets to meet their long-term goals.

Here are the top six successes of California and Quebec’s carbon market in 2015, in no particular order. Read More »

Also posted in California, Emissions trading & markets| Leave a comment
  • Get blog posts by email

    Subscribe via RSS

  • Categories