Gov. Jerry Brown and the Legislature got some bad news Wednesday about plans to spend more than $3 billion in proceeds from the state’s “cap-and-trade” auction of carbon dioxide emission allowances.
The results of last week’s quarterly auction were posted and revealed that instead of the $500-plus million expected from the sale of state-owned allowances, the state will get only about $10 million, less than 2 percent.
The poor results confirmed reports circulating in financial circles that the cap-and-trade program has begun to stumble. February’s auction resulted in some allowances being left unsold – the first time that had happened. Afterward, there was a brisk trade in the secondary market as speculators began dumping their holdings due to uncertainty about the future of the program, which may expire in 2020.
Market followers said the sell-off indicated there would be little demand during the May auction, and the results bore out that expectation.
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Brown has submitted a plan to spend $3.1 billion in auction proceeds in 2016-17, both leftover funds from past auctions and an estimated $2 billion from those during the fiscal year. The plan covers a wide variety of projects and programs, including a major allocation to support the state’s high-speed rail project.
This month’s auction results cut into that expectation, but whether it’s a one-time dip or the harbinger of a more permanent down-market is uncertain.
Department of Finance spokesman H.D. Palmer said the shortfall will reduce the anticipated carryover of cap-and-trade funds into the 2016-17 year but noted that Brown had built a $500 million cap-and-trade reserve into his budget.
The Air Resources Board offered 67.7 million tons of “current vintage” carbon emissions and another 10.1 million tons of 2019-vintage emissions at a reserve price of $12.73 a ton. Utilities owned some of them, as did the state’s trading partner, Quebec, but the ARB offered 35.6 million tons of its current allowances and 8.7 million 2019 tons.
None of the state’s current allowances was sold and only 1.4 million of its 2019 allowances, generating about $10 million in state proceeds.