Wednesday, November 20, 2013

California holds fifth cap-and-trade auction

California continued its pioneering program of auctioning allowances that authorize polluters to emit greenhouse gases to the atmosphere this week, holding the fifth auction in the past year on Tuesday.

Results of the auction will not be available until Friday. However, given that all the allowances for both the current year and for 2016 were sold at the last auction in August, there is reason to surmise a that Tuesday's event showcased a similar level of interest from the regulated community.

"We’re expecting participation to have been strong and that the futures are going to sell," Emily Reyna, a manager with the U.S. climate and energy program operated by Environmental Defense Fund, said. "I think that, like a lot of other folks have been saying, the price might come down a bit. That’s probably because it’s the end of the year and companies at this point know their emissions levels for 2013 and have a better sense of what their compliance obligations are going to be."

The latest auction comes on the heels of a California superior court decision that rejected a two-pronged legal attack on the state's cap-and-trade program. The plaintiffs in that case argued that it is not authorized by A.B. 32, the state's landmark 2006 climate change law, and that the auction proceeds are a tax that was not approved by a constitutionally required super-majority of state legislators.

Judge Timothy Frawley ruled on Nov. 14 that the state legislature authorized the California Air Resources Board to conduct the cap-and-trade auctions and collect money from regulated entities for emission allowances and did not violate the state constitution's taxation procedures.

"I think this case further injects confidence for participants that the market and the program is here to stay," Reyna said.

The nascent market will soon grow larger, as California regulators recently announced that the state's cap-and-trade program will be integrated with one run by Quebec authorities.

Implementation of that expansion will occur on Jan. 1, 2014.