November 2013 California Cap-and-Trade Program Auction Shows Continued Strengthening of Carbon Market
By KEVIN POLONCARZ & BEN CARRIER
On November 22, 2013, the California Air Resources Board (CARB) announced the results of its fifth auction of California Carbon Allowances (CCAs or allowances) under the Cap-and-Trade Program. The auction results indicate continued strengthening of the California carbon market, notwithstanding that the clearing price for 2013 vintage allowances has declined since earlier this year. Increased participation among covered entities in the auction for 2016 vintage allowances suggests that market participants are becoming increasingly confident that the Program will not be invalidated, with this last auction held only a week after a court dismissed a challenge to CARB’s authority to raise revenue through the auction in California Chamber of Commerce v. CARB. While the softening price for 2013 allowances may be taken as an indication that the allowance market is currently over-supplied, a higher settlement price is not necessarily in CARB’s long-term interest. Indeed, as CARB begins eyeing more dramatic mid- and long-term reduction targets for 2030 and 2050, the goal of demonstrating that the Program can achieve a defined emissions reduction target, with limited economic impacts, is becoming as important as the immediate goal of achieving AB 32’s 2020 goal.