California’s First Carbon Auction: Examining the Results

On November 14, California held its inaugural carbon allowance auction, publishing a summary report the following Monday, November 19.

The auction was conducted smoothly as qualified participants had no problem submitting bids on the market platform.

In fact, according the Air Resources Board (ARB) report, there were three times as many bids as available allowances, demonstrating a high level of participation.

All 23.1 million California carbon allowances (CCAs) for use in 2013 were sold at a clearing price of $10.09.

Although the mean bid price was $13.75, the auction is structured so that all allowances are sold at the final accepted bid price. For instance, even though a business may have bid $14 for 10,000 CCAs, they only paid the clearance price of $10.09.

The auction was designed this way in order to achieve low cost emission reductions.

The clearance price comes as somewhat of a surprise, since in the weeks leading up to the auction, 2013 CCA futures were trading above $12 per tonne.

Speaking in a webinar held by the Climate Action Reserve on November 28, Environmental Markets Broker Dave Mann said that the mean bid price of $13.75 indicated that regulated entities were expecting to pay much more than the $10.09 clearance price.

Still, the first California carbon auction represents a nearly $300 million investment in the state’s carbon market. These funds will be put toward clean energy initiatives, improving air quality in disadvantaged communities, and neutralizing any increases in ratepayer’s electric bills.

Carbon auctions will be held quarterly, with the ARB’s first reserve allowance auction scheduled for March 8, 2013.