On November 14, 2012, the California Air Resources Board
(ARB) held its first auction for the purchase
and sale of carbon allowances for its nascent cap-and-trade regime.
ARB chairwoman, Mary Nichols, declared the auction a success. For a
number of reasons, there is good cause to agree with her. First, a
tonne of carbon for the 2013 vintage year sold for $10.09.
That's slightly above the $10.00 price floor set by the ARB.
The highest bid was a whopping $91.13. Second, there were three
times the number of bidders at the auction than actual buyers,
indicating a healthy and competitive market. Additionally, 97% of
allowances were purchased by entities required to participate in
the regime indicating prices were not influenced by speculative
buyers. Rather, it seems to indicate regulated entities are looking
to retire allowances in anticipation of compliance. Finally and
most importantly, the auction sold out. All 23,126,110 2013 vintage
year allowances were purchased, raising approximately $233 million.
The kickoff of this auction creates the largest carbon market in
North American and the second largest in the world, behind only the
European Union Emissions Trading Scheme.
As we have noted on this blog before, California is
acknowledged as a leader in climate change initiatives.
Undoubtedly, Canadian environmental regulators will look to
California's cap and trade model with great interest. This is
particularly true of Canadian provinces that are partners with
California in the Western Climate
Initiative (WCI): British Columbia, Manitoba,
Ontario, and Quebec. The WCI is a partnership between California
and the aforementioned provinces to implement a joint strategy to
reduce greenhouse gases. The success or failure of California's
cap and trade scheme is likely to influence any Canadian WCI
member's willingness to adopt a similar scheme.
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