Buyers at the auction took just 785,000 of the 43 million allowances offered, each of which allow the emission of one metric ton of carbon dioxide. All the permits were bought at the floor price of $12.73.There are a lot of very poor, and mainstream, economists who have a great zeal for pricing carbon and no interest in attending to detail. Most are professors. They are represented in the article by:
But there is a secondary market, where the private parties who own the credits trade them daily. Those credits were recently priced at $12.34, well below the state floor in the auctions. It means that any company needing a credit could buy it more cheaply on the secondary market than in the auction.
...a serious possibility is that emitters of carbon dioxide are making better-than-expected progress at cutting their gas output. That would mean the program is more successful than expected...Another serious possibility is there is a flood of credits on a secondary market - credits attained without any real reduction in emissions, which I've learned from following Aldyen Donnelly are known as "hot air" credits.
These are the credits that depress the carbon price. My province of Ontario may have chosen to join California in cap-and-trade precisely because it will be cheaper to purchase "hot air" credits from California than to attain actual carbon reductions at home.