California’s Carbon Market Remains Strong through Growth Spurt

rp_KHK-picture-200x300.jpgGrowing 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.

More allowances, more climate investments

The expansion of the program and increase in allowance supply means a more comprehensive program that covers the vast majority of harmful climate pollution sources in California. This also means more proceeds to go towards climate investments through the Greenhouse Gas Reduction Fund (GGRF). From there, the funds will be appropriated to projects that will help build a resilient clean economy, create jobs, clean the air, and improve the health and well-being of Californians. The smart investment of these new funds will have benefits across the state and the economy, and it is vital that California ensure benefits reach the communities that need it most. At this time, the exact amount raised is not yet available as further calculations need to be done to account for the fact that bids were placed in both Canadian and U.S. dollars.

After a successful two years during which California linked its auctions with Quebec’s, decreased capped emissions, and survived various attacks by some transportation fuel companies unwilling to pay the price for their emissions, the Golden State’s climate policy passed yet another major test with the expansion of its cap. Now in full swing, the program is moving forward to reduce emissions from the state’s biggest polluters and help pave the way for new, long-term climate goals and a low-carbon future in California.

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