California carbon auction success; all 2013 allowances sold

With all eyes watching, the California carbon market kicked off with a bang last Wednesday when it held the first allowance auction in what will be the second largest carbon market in the world.

According to the California Air Resources Board, all 23, 126, 110 carbon allowances for delivery in 2013 were sold with a mean bid price of $13.75, including a maximum bid of $91.13.

The auction generated hundreds of millions of dollars for the state to invest in other green initiatives and to reduce the impact of the new regulations on electric utility subscribers.

Bidders included 73 organizations including regulated emitters, financial institutions, and other proponents of the carbon market.

97% of the 2013 CCAs were purchased by businesses that will be required to comply with new emissions regulations beginning in January such as electric utilities Pacific Gas & Electric, Southern California Edison, and the San Diego Gas & Electric Company. Fuel refineries owned by British Petroleum (BP), Chevron, Exxon, Phillips 66, and Shell must also begin to account for their emissions next year.

In addition to purchasing carbon allowances, regulated emitters will be able to buy carbon offset credits to meet up to 8% of their compliance obligation.

This creates a potential demand for over 200 million between now and 2020, but according to a recent study by the American Carbon Registry the supply of carbon offsets could fall short by as much as 67% from 2018-2020.

Pacific Gas & Electric and the Sacramento Municipal Utilities Department have already issued Request for Offers for hundreds of thousands of carbon offset credits.