Solar farm in the Mojave Desert, California
The results of the latest Western Climate Initiative cap-and-trade auction were announced today and showed stronger demand for allowances than in the May auction. This meant significantly higher revenue for California’s Greenhouse Gas Reduction Fund.
While the auction was still undersubscribed for the second quarter in a row, this is not a surprising outcome due to the ongoing COVID-19 crisis, the renewed closures in parts of California’s economy, and the overall economic uncertainty.
First, let’s do the numbers:
- 52,627,000 current allowances sold of the 59,250,484 offered for sale. This is a substantially higher percentage, 89%, of allowances sold than the May auction where only 37% sold. Approximately 1.7 million additional allowances were offered in August as in May.
- Current allowances again settled at the floor price of $16.68, which is $1.19 below the record-high clearing price in the February 2020 auction.
- 8,672,250 future vintage allowances were offered for sale, 100% of them sold. This is also significantly higher than in the May auction were only approximately 20% of future allowances sold.
- The future allowances cleared at the floor price of $16.73, 5 cents above the floor price. These allowances cannot be used for compliance until 2023.
- The auction raised approximately $474 million for the Greenhouse Gas Reduction Fund, higher than the $25 million raised at the May auction.
- Quebec raised over $171 million CAD (approximately $129.5 million USD) for their own climate investments.
The August auction saw stronger demand for allowances than the May auction, and this could be for a few reasons:
- There is still a significant amount of uncertainty in the economy, but the second round of closures in California weren’t as far-reaching as the first round. Thus, more people are out on the road and more establishments are open for business. Without significant structural changes, COVID-induced emission reductions will be temporary, and the fast rebound that has been observed worldwide is a stark reminder of the critical importance of policies such as California’s cap-and-trade program that ensure pollution will continue to decline at the pace and scale necessary.
- The August auction was the second-to-last opportunity to purchase state-owned allowances before the end of the 2018-2020 compliance period. While entities will have until November 2021 to turn in all allowances for the current compliance period, they will not be able to use allowances purchased in 2021 for a 2018-2020 obligation.
- This was also the second-to-last auction where allowances are offered at the current floor price of $16.68. Starting in the February 2021 auction, the minimum auction price will be higher by 5% plus inflation.
Beyond today’s auction results, this year is revealing a great deal about California’s climate leadership and programs —and ways they can be strengthened moving forward.
Below are our top priority observations:
- Climate programs, and especially those focused on climate equity, deserve consistent and dependable funding.
While the purpose of the cap-and-trade program is to reduce emissions and be the backstop to ensure California meets its climate goals, the revenue cannot be ignored. The Greenhouse Gas Reduction Fund has raised over $12.5 billion for investment in the state’s climate priorities, with 57% of implemented funds benefitting disproportionately burdened populations and communities. The limited revenue from the May and August auctions means that programs like the Community Air Protection Program and the Safe and Affordable Drinking Water Program, both essential to human health, equity, and the environment, lack sufficient funding. The Legislature appears to be waiting to put together a GGRF expenditure plan until there is more clarity about revenue, which is wise. However, our elected leaders also need to find a more resilient source of funding for these essential programs, other than a mechanism that will actually be most successful if emissions decline and revenue decreases over time.
- California’s economy is shifting away from fossil fuels in potentially significant ways; the very real consequences to fossil fuel workers cannot be ignored.
Two Bay Area refineries recently announced dramatic shifts in their business models. Marathon Petroleum’s Martinez refinery is closed indefinitely, and they are considering transitioning the facility to produce renewable fuels.; Phillips 66 has announced a transition plan for the Rodeo Refinery, which would fully re-purpose the facility to produce renewable fuels by early 2024. Phillips 66 is reporting that this transition will create 500 construction jobs, result in 400+ “green” jobs after transition and reduce greenhouse gas emissions by 50% and criteria pollutants by 60%. This is good news for California because of the reductions in both climate and local air pollution, as well as being a needed step away from our reliance on fossil fuels. At the same time, the potential employment implications demand further consideration.
Related to this issue, EDF is embarking on a research project with Resources for the Future to inform policymaking on fairness for fossil fuel workers and communities in transition. This includes finding solutions to ensure that the needs of impacted workers and communities are met through economic development, workforce development, environmental remediation and infrastructure, and public benefits.
- We are living the impacts of climate change right now; California needs to increase its climate ambition and encourage others to do the same.
The US is seeing exactly what climate change looks like, and it is having a very real impact on everyone’s health. Two major storms are bearing down on the Gulf Coast, as the east coast braces for an “above average” hurricane season; the Midwest has been inundated by heavy storms and flood water; and the West is sweating out both a record-breaking heat wave, and the resulting rolling blackouts in California. This has sparked dozens of wildfires and the subsequent dangerous air pollution that has become all too familiar. These impacts are especially dangerous for members of our communities who are already most vulnerable. And it’s not going to happen in the future – it is happening right now.
While California has been a climate leader amid federal inaction, the state still needs to increase its ambition in fighting climate change. A crucial opportunity to do this is through the upcoming Scoping Plan process, where the state has the chance to increase the stringency of the cap-and-trade program. This is important as California plans for how to reach its 2030 emissions reduction goal of 40% below 1990 emission levels. At the same time, the state should codify a mid-century climate target in order to reach carbon neutrality by 2045 and achieve a 100% clean economy. Just as importantly, California should encourage and support other states and countries to take their own ambitious climate action—which at a minimum needs to include the adoption of binding, declining limits on greenhouse gas pollution consistent with scientific recommendations.
Today’s auction results further demonstrate the durability of cap and trade in reducing emissions, but they also reveal the need for a reliable source of funding for essential programs focused on equity. Additionally, this year’s onslaught of extreme weather events underscores the demand for even greater ambition to meet the scale of the climate challenge – and for crafting real solutions that can give workers and communities the support they need as California shifts to a clean economy.