California held its second auction Tuesday for carbon-emissions allowances, pursuing the next phase in its controversial mechanism to curtail greenhouse gases.
The Air Resources Board sold more than 22 million allowances, each one containing the right to emit a ton of carbon into the air. The state agency will wait until Friday to release prices and other results from the three-hour electronic auction. The minimum bid price was $10.71 a ton.
California's first carbon auction, held last November, raised $290 million. Bidding was expected to be brisk this time as more companies jump into the market.
Many companies were unprepared or unsure about how the market worked last fall, said Jon Costantino of the Association of Carbon Market Participants. That's not the case anymore. "It's a little more certain that these things are regular," he said. "Folks are more in tune."
The auction and its regulatory cousin, the cap-and-trade market, are centerpieces of AB 32, the state's attempt to combat global warming. The state has placed a ceiling, or cap, on the total amount of carbon that can be emitted each year by several hundred of the largest industrial polluters. The cap declines slightly each year.
Companies get most of their pollution allowances for free, but if they need additional allowances they have to buy them, either from the state's auction or on the open market. State officials say this approach gives companies flexibility to comply with AB 32 and will spark innovation. Companies that can scale back their pollution dramatically will be able to sell their extra allowances, giving them financial incentive to reduce their carbon footprint.
Big business groups, however, see cap and trade as a thinly disguised tax that will cost them over $1 billion a year. The California Chamber of Commerce is suing over the auction process, saying all the emission allowances should be handed out for free.
The state is trying to get the lawsuit dismissed, and two environmental groups have entered the case on the state's behalf: the Environmental Defense Fund and the Natural Resources Defense Council.