California's inaugural cap-and-trade auction declared a success

21 novembre 2012

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On November 14, 2012, the California Air Resources Board (ARB) held its first auction for the purchase and sale of carbon allowances for its nascent cap-and-trade regime. ARB chairwoman, Mary Nichols, declared the auction a success. For a number of reasons, there is good cause to agree with her. First, a tonne of carbon for the 2013 vintage year sold for $10.09. That’s slightly above the $10.00 price floor set by the ARB. The highest bid was a whopping $91.13. Second, there were three times the number of bidders at the auction than actual buyers, indicating a healthy and competitive market. Additionally, 97% of allowances were purchased by entities required to participate in the regime indicating prices were not influenced by speculative buyers. Rather, it seems to indicate regulated entities are looking to retire allowances in anticipation of compliance. Finally and most importantly, the auction sold out. All 23,126,110 2013 vintage year allowances were purchased, raising approximately $233 million. The kickoff of this auction creates the largest carbon market in North American and the second largest in the world, behind only the European Union Emissions Trading Scheme.

As we have noted on this blog before, California is acknowledged as a leader in climate change initiatives. Undoubtedly, Canadian environmental regulators will look to California’s cap and trade model with great interest. This is particularly true of Canadian provinces that are partners with California in the Western Climate Initiative (WCI): British Columbia, Manitoba, Ontario, and Quebec. The WCI is a partnership between California and the aforementioned provinces to implement a joint strategy to reduce greenhouse gases. The success or failure of California’s cap and trade scheme is likely to influence any Canadian WCI member’s willingness to adopt a similar scheme.

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