Bloomberg News
California Carbon Allowances Sold
Out at $10.09 in Auction
By Lynn Doan on
November 19, 2012
Carbon
allowances for the start of California’s program to curb greenhouse-gas
emissions, the largest U.S. system of the kind, sold out last week at $10.09 a
metric ton, lower than the range analysts forecast.
The state Air
Resources Board sold all 23.1 million carbon permits offered at a Nov. 14
auction for the first compliance period of the program starting Jan. 1, the
agency’s website showed today. The permits, each of which allows the release of
one metric ton of carbon, were estimated to clear between $12 and $15 a ton in
the first auction, according to Bloomberg New Energy Finance.
Carbon futures
fell to $12.15 a ton after the California Chamber of Commerce filed a lawsuit
challenging the state’s authority to sell permits. The program covers 85
percent of emissions in an economy valued at $1.74 trillion last year. The
state is giving away about 90 percent of permits at the onset and selling the
rest in what will be the second-biggest carbon market, after the European Union
program.
The auction
clearing price “echoes the sentiments expressed by some market participants
regarding the uncertainties and the sheer volume of allowances being auctioned
in this round,” Samantha Unger Katz, managing director of BGC Environmental
Brokerage Services in New York, said by e-mail.
Second Phase
Futures
contracts based on carbon permits for 2013 were trading at $11.60 a metric ton
on the Atlanta-basedIntercontinentalExchange Inc. (ICE)
at 4:26 p.m. New York time, down from $12.05 on Nov. 16, Lenny Hochschild, head
of global carbon trading for broker Evolution Markets in White Plains, New
York, said. No trades were done this morning before the release of the auction
results, he said.
The state sold
5.58 million out of the 39.5 million allowances it put up for auction to be
used in the second phase of the program, beginning in 2015. The advance permits
cleared at $10 each, the lowest price allowed by the program, known as the
“floor” price.
Bloomberg New
Energy Finance predicted that some of the advance allowances would go unsold as
fuel distributors waited to begin stockpiling credits.
Capping Carbon
Companies bid
for more than three times the number of allowances up for sale to be used in
the first compliance period, the state air board said.
“That’s around
70 million allowances bid, so that’s pretty healthy,” Anthony D’Agostino,
director of emissions markets at RBC Capital Markets, said by telephone. “On
the flip side, there were probably a lot of people who said, ‘Let’s stick some
bids in at $10,’ so you have to weigh that a little. If there was no price
floor, I think it would have been less.”
The California
Chamber of Commerce filed a lawsuit Nov. 13 against the auction, calling it “an
unconstitutional fee.” The group argued in the suit that the air board lacks
authority to sell carbon allowances, saying it’s paramount to an invalid tax
costing taxpayers $70 billion.
California
plans to cap carbon emissions beginning next year from power generators, oil
refineries and other industrial plants. The limit will decline each year to
achieve a 15 percent reduction in emissions by 2020. Companies must surrender
carbon permits to cover their emissions over three phases of the program. Those
that discharge less than their cap can sell their spare allowances.
Auction Results
Mary Nichols,
chairman of the air resources board, said the agency was “delighted” by the
results of the Nov. 14 auction.
“We’re just
pleased that the allowances sold out and that they sold out at a good price,”
Nichols said. “That’s a sign that we’ve got a vibrant and successful market
here.”
More than 70
companies qualified to bid in Nov. 14 auction, with BP Plc (BP/), Chevron Corp.
(CVX),
Exxon Mobil Corp. (XOM),
Royal Dutch Shell Plc (RDSA), Tesoro Corp. (TSO)
and Valero Energy Corp. (VLO)
among the refiners who registered to participate. The qualified power utilities
included Pacific Gas & Electric Co., Los Angeles Department of Water &
Power, San Diego Gas & Electric Co. and Southern California Edison.
The auction was
conducted electronically and overseen by a half-dozen agency staff members in a
room without windows. The agency took five days to review the auction for
manipulation before certifying results.
To contact the
reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net
To contact the
editor responsible for this story: Dan Stets at dstets@bloomberg.net
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direct link to this article: http://www.businessweek.com/news/2012-11-19/california-carbon-allowances-sold-for-10-dot-09-in-first-auction
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