California’s market-based program for fighting climate change had struggled badly over the past year. On Wednesday, it bounced back sharply.
Industrial companies spent more than $1 billion in the latest state-run auction of carbon-pollution credits, state officials announced Wednesday. More than 90 percent of the available credits sold out, according to data released by the California Air Resources Board.
It was one of the strongest auction results in the past year, and came weeks after a crucial court ruling upheld the legality of the auctions.
“It’s a validation of the overall program,” said Chris Busch, who tracks the California carbon market for San Francisco think tank Energy Innovation.
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California’s cap-and-trade program, launched in 2012, requires hundreds of industrial companies and others to purchase credits enabling them to emit carbon. It’s one of the centerpieces of the state’s efforts to combat climate change and limit greenhouse gas emissions.
In the past year, however, the program had faltered and millions of carbon credits had gone unsold. That deprived the state of hundreds of millions of dollars in revenue for the high-speed rail project and other programs designated by the Legislature.
A key factor in the market weakness was a pending court case challenging the constitutionality of the auctions. Last month, the state Court of Appeal said the auctions can proceed.
“The court ruling certainly is the big difference; it took away one big question mark,” said Jon Costantino of Tradesman Advisors Inc., which consults with companies on complying with California’s carbon rules.
Although total sales from the latest auction topped $1 billion, only about half of the proceeds will go to the state. The rest will go to the provincial government of Quebec – California’s partner in the program – and to major California utilities. Under cap and trade’s complicated setup, utilities are given carbon credits for free. They’re required to sell them back into the system, and then repurchase what they need to cover their emissions. The roundabout process is designed to cushion ratepayers from higher costs.
Cap and trade is due to expire in 2020, and it’s uncertain whether the Legislature will renew it. But in the meantime, companies required to participate in the market have little choice but to purchase credits, Costantino said.
“You have to start buying again,” he said.
Each credit allows a company to emit 1 ton of carbon.