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.
From Twitter:
The background most people in Ontario don't know - and university economists won't tell them: In the oughts (20##) there were extensive discussions about an inter-jurisdictional cap-and-trade scheme dubbed the Western Climate Initiative (WCI). All states avoided participation, and my understanding it's because California's approach did create credits that weren't back be actual emission reductions in treating the scheme largely to produce non-tariff trade barriers.
Quebec joined, but I considered that marketing to gain greater acceptance of large-scale Quebec hydro-electric power as green in the American markets they desired to export to.
Ontario joined because, in my opinion, it would be cheaper to send money to California than to actually reduce emissions in Ontario - but it's cheaper because the California credits are primarily "hot air."
Now the question is does California eat the unsold credits or try to reintroduced them in later auctions. If they eat them, they might get back to a carbon price.
The L.A. Times article should be read for it's content related to projects threatened by planned carbon revenues not materializing. The strange things about some much carbon pricing is the revenue planning that assumes carbon emissions won't be reduced by much.
Addendum 1
This article, from the Sacremento Bee prior to the auction explains the results well!
One analysis circulating in financial circles raises the possibility that none of the state-owned allowances will be sold because of a huge increase in between-auction sales on the secondary market below the official price.
It appears that speculators who bought up allowances in earlier auctions, hoping to profit when prices rose, have become disenchanted and are dumping their holdings. An estimated 71 million tons in allowances changed hands after the February auction, the equivalent of an entire quarterly auction.
Privately, analysts inside and outside state government say that a major factor in the glut of available emission allowances is uncertainty over the program’s legality and future.
Legislative authorization for cap-and-trade expires in 2020, and a pending lawsuit filed by the California Chamber of Commerce contends that the program is an illegal tax that would require a two-thirds legislative vote to be imposed.
Given the huge secondary market activity since the last auction, and the legal requirement that the state’s allowances be sold after those from electric utilities, it’s possible that the May auction could generate very little money for the $3.1 billion spending plan, and that the low-revenue situation could continue indefinitely.
We’ll know for certain when this week’s closely watched results are known.
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