California Holds First Auction of Cap-and-Trade Program Allowances Under Cloud of Litigation

A year after adopting its Cap-and-Trade Regulation, the California Air Resources Board (CARB) held its first auction of greenhouse gas (GHG) emission allowances on November 14, 2012. While the results of the auction will not be available to the public until Monday, November 19, all indications are that the auction proceeded smoothly without any unexpected difficulties. The auction occurred, however, less than 24 hours after a lawsuit was filed by the California Chamber of Commerce, challenging the authority of CARB to hold an auction for allowances that allegedly should have been freely given to covered industries. This litigation and further anticipated legal challenges to the cap-and-trade program may have exerted significant downward pressure on allowance prices. Thus, the auction results may be more indicative of views on whether the program will survive legal scrutiny, than the actual abatement costs needed to achieve Californias GHG reduction goals.

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