Companies spent more than $1 billion in California’s latest sale of carbon emissions credits, making it the largest auction since the controversial “cap and trade” program began in late 2012.
The reason: The program was expanded effective Jan. 1 to cover transportation fuels, and the state expanded the pool of available credits to accommodate the larger demand.
Cap and trade, a centerpiece of the state’s 2006 climate-change law, requires hundreds of major industrial firms to purchase credits in order to emit carbon. While the program is designed to give the affected companies flexibility in how they meet the state’s emissions limits, business lobbyists have called the state-run auctions an unconstitutional tax. A lawsuit challenging the auctions was dismissed in the lower courts but is being appealed.
The controversy over cap and trade intensified on Jan. 1, when fuel wholesalers were required to participate in the program for the first time. The result has been an estimated 10 cents-a-gallon increase in gasoline prices at the pump. To ensure that the price impact wasn’t too severe, the state dramatically increased the volume of available credits for sale at the latest auction, which was held Feb. 18.
Participants paid $12.21 per credit for the right to emit carbon this year, a price that is roughly in line with previous auctions. They paid $12.10 apiece for credits that can be used in 2018. Each credit is good for a ton of carbon emitted.
The total proceeds came to $1.02 billion, by far the largest amount recorded to
date, according to the California Air Resources Board.
“It’s the biggest. The reason it’s so large is that fuels have come under the cap,” said David Clegern, a spokesman for the Air Resources Board. Transportation fuels account for about 40 percent of greenhouse gases.
Last week’s auction was the second joint sale held with the Canadian province of Quebec. Credits purchased in California can be used to emit carbon in Quebec, and vice versa.
The second major piece of the 2006 law is California’s low carbon fuel standard, which requires refiners and distributors to reduce the “carbon intensity” of their products by 10 percent by 2020. The Air Resources Board is in the process of renewing the standard after an appellate court found flaws in how the agency implemented the regulations.