3rd Quarterly California Cap-And-Trade Auction Strongest In History, But Not All Good News

The California Air Resources Board (CARB) today released results of the state cap-and-trade program’s third quarterly auction of carbon allowances for 2017. This is the first auction held since the program was extended through 2030 by a two-thirds legislative supermajority in July. This snap reaction statement summarizes allocation demand, supply, prices, and revenue and is attributable to Energy Innovation Director of Research Chris Busch.

Third quarterly California carbon market auction of 2017 completely sells out of allowances at highest auction price in system history, but additional allowance sales could undercut efforts to get on track for the state’s ambitious 2030 emissions reduction goal. 

As we had anticipated, auction demand was the strongest in years – all 64 million current vintage allowances offered were sold at $14.75 per ton clearing price, the highest auction settlement price in the system’s history.”

“This was also the strongest result in years for the advance auction of future vintage allowances.  All future vintages offered were purchased at $14.55.  The last time all allowances offered through an advance auction sold out was November 2015.” (These future vintage allowances are not valid for the current compliance period, which concludes at the end of this year, but can be used in the next compliance period, 2018-2020.)

“The auction will raise roughly $640 million for California’s Greenhouse Gas Reduction Fund. The full value of allowances sold equals almost $1.1 billion, but some of these are Quebec’s allowances and some of the allowances sold are auctioned on behalf of electric utilities through California’s ’consignment’ approach to the distribution of allowances in the electricity sector.”

“Unstable results in previous auctions raised questions about program performance, but this auction is the second in a string of sold out auctions through at least 2020.  Stable auctions will be taken by many as a sign of success and will facilitate efficient investment of revenue – but it’s not all good news.”

“The system’s allowance oversupply issue remains unresolved, and the boost in near term demand is due to emitters and speculators snapping up allowances at relatively low prices in anticipation of the aggressive post-2020 cap reductions.  Additional allowances purchased today will be banked and eventually used later, potentially forestalling the necessary ramping up of emission reductions needed to meet California’s 40 percent reduction by 2030 goal.  The last set of inventory results for state greenhouse gas emissions returned the weakest reductions since 2007. We recommend that CARB address oversupply sooner than later so that cap-and-trade can play a stronger role in reducing emissions.”