California holds landmark carbon auction

On Wednesday California held the first carbon allowance auction in what will be the second largest carbon market in the world, behind only the European Union.

According to the auction notice provided by the California Air Resources Board (ARB), over 23.1 million California carbon allowances (CCAs) for delivery in 2013 and an additional 39.4 million CCAs for delivery in 2015 were put up for sale.

Over the next few years California expects to generate billions of dollars in revenue from the sale of CCAs that will be spent on other clean energy programs in the state.

CCA prices have fluctuated during the past several months, hitting a peak of over $20 apiece in late July before settling down in the $13 range for the past few weeks, despite a floor price of $10.

Each CCA represents one metric tonne of carbon dioxide equivalent (CO2e) emissions.

Starting next year the state’s largest emitters will be required to buy and trade CCAs to meet new emission reduction requirements.

The California cap-and-trade model allows policy makers to set the environmental goal of reducing emissions, while allowing the free market to determine the best way to meet those targets.

Emitters can opt to purchase CCAs or invest that money to improve the efficiency of their operations.

Regulated emitters will also be able to purchase California carbon offsets (CCOs) to meet up to 8% of their compliance obligation.

CCOs are generated from four project types (Forestry, Agricultural Methane Capture, and the Destruction of Ozone Depleting Substances) that keep millions of tonnes of CO2e from entering the atmosphere.

According to a recent report from the American Carbon Registry, there is the potential demand for over 10 million carbon offsets during 2013 and 2014, however the current supply of available offsets could fall short by as much as 29%.

The California carbon market is one tool that the state is using to meet its goal of reducing emissions to 1990 levels by 2020.