State regulators on Monday celebrated the results of last week's first-ever auction of California greenhouse gas emission permits, declaring the long-awaited kickoff to the nation's first effort to put a price on carbon pollution a success.
The state did not disclose how many companies participated in the historic auction. But there were three times as many bidders than buyers, a sign that the business community is taking the new carbon market seriously. A ton of carbon sold for $10.09 at the auction, just slightly above the $10 floor price established by regulators, according to data released by the California Air Resources Board.
More important, all of the 23.1 million permits offered at the auction to cover 2013 emissions were purchased, raising $233 million and calming fears that the market would be under-subscribed.
The money will be funneled to residential customers of the state's utilities to offset higher electricity rates that are expected to result from the shift to clean energy. Under a proposal released Friday, California residents would twice a year get a "climate dividend" worth about $30.
While some speculated that the nation's biggest banks would jump into the new carbon market and buy up allowances, 97 percent of the allowances were purchased by "compliance entities," or companies that must reduce their greenhouse gas emissions.
"The first auction of carbon allowances was a success," said Mary Nichols, chairwoman
California's cap-and-trade program is the cornerstone of the state's landmark global warming law, known as AB 32, that was signed by Gov. Arnold Schwarzenegger in 2006. AB 32 includes a suite of regulations meant to dramatically reduce emissions of heat-trapping gases, including requiring utilities to obtain 33 percent of their electricity from renewable sources by 2020.
Under the program, the state sets an overall emissions "cap" for individual California companies that emit more than 25,000 metric tons of carbon dioxide or other greenhouse gases. Those that reduce emissions below their cap can sell or trade their unused allowances to companies that exceed their limits. If the system works as designed, the most efficient companies will be financially rewarded, polluters will pay and greenhouse gases will be dramatically reduced.
An independent market monitor verified the results of last week's auction and found no evidence of collusion or manipulation in the bidding process, according to Nichols.
The Air Resources Board did not release a list of which companies participated in the auction and which stayed on the sidelines. But several of the state's largest entities, including Chevron, ConAgra, the Regents of the University of California and Valero were among the list of "qualified bidders," which meant they registered for the auction and were approved to participate. The bids themselves were sealed and will not be made public. Companies that did not participate could take part in future auctions.
"The auction itself was designed to be done on a confidential basis," said Nichols. "These are private decisions businesses are making: whether they will reduce emissions or purchase allowances."
The state also auctioned 39.5 million permits that cover 2015 emissions; of those only 5.6 million allowances were sold, all at $10 a ton. The $55 million raised goes into a new Air Pollution Control Fund.
Nathaniel Keohane, an economist and vice president of the Environmental Defense Fund, said the auction put California "on a low-carbon economy pathway" and was "a great success with no surprises."
Petroleum refiners, manufacturing companies and other industries have been outspoken opponents of the program, calling it an illegal tax that will hurt California's economic recovery. Last week, the California Chamber of Commerce filed a lawsuit seeking to invalidate the cap-and-trade auction, arguing that the Air Resources Board exceeded the authority granted under AB 32.
"Our concern is not the price," Loren Kaye, president of the California Foundation for Commerce and Education, a think tank affiliated with the CalChamber, said Monday. "It's that the auction itself is a revenue raiser that was not authorized by the law."
But cleantech venture capitalists cheered the outcome. Rob Day of Black Coral Capital in Boston has been watching California's experiment closely.
"The price of carbon matters, but the price is going to change over time. It's more important to me to see that there was an appetite for these credits," Day said. "This is a robust market. It's real. It's not going away. California is pricing carbon, and companies are saying, 'I need to start paying attention to my carbon footprint.' "
Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.