California carbon market sees weak demand for permits

Reuters News
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Posted: Mar 01, 2017 8:28 PM

By Rory Carroll

SAN FRANCISCO (Reuters) - California's carbon market generated little interest from buyers at last month's permit auction, results released on Wednesday showed, raising concern about the program's ability to deliver funding for projects like the state's bullet train.

California along with its carbon market partner Quebec sold 18 percent of the over 65 million permits it offered up to businesses at the sale, which was held on February 22.

The permits cleared at $13.57 a metric tonne, the minimum price allowed under the program, raising approximately $8.2 million.

The program has raised about $4.4 billion for the state since its first auction in November 2012 but proceeds have dropped recently due to weak permit demand.

California's carbon market sets a steadily declining cap on the state's carbon output and then sells or gives permits that businesses are required to submit every three years to the state to cover their emissions.

California is on track to reach its goal of reducing emissions to 1990 levels by 2020.

California Senate Leader Kevin De Leon said on Wednesday the "anemic" auction results demonstrated the need for the state to reform the landmark program.

"The program is not producing stable revenues for important priorities like increased transit and other clean transportation investments," he said in a statement.

A quarter of the revenue from the program is used to support California's $64 billion high speed rail project, a priority for California Governor Jerry Brown.

Dave Clegern, a spokesman for the California Air Resources Board, said the market was designed so facilities covered by the program like oil refineries and manufacturing plants would reduce emissions by cleaning up whatever low-hanging fruit was available first.

"In that case they may not need allowances until later," he said.

Chris Busch, a director at San Francisco-based think tank Energy Innovation, said that if the program wanted to raise prices it should require businesses to surrender their allowances annually, lower the program's emissions cap, raise the price floor, and give away fewer free allowances.

The secondary market for allowances was little changed on Wednesday but the benchmark contract fell 10 cents on Tuesday after De Leon's office mistakenly sent out its press release on the results. It quickly retracted the release. It issued the press release again on Wednesday after the results were made public.

Carbon permits for delivery in December were trading at $13.57 a tonne on the secondary market on Wednesday, a broker said on Wednesday.

(Reporting by Rory Carroll)