California's cap-and-trade compliance obligations became
binding on January 1, 2013, culminating six years of regulatory
proceedings. Although the California Air Resources Board
(CARB) deemed the first auction for emission allowances in November
a success, revised statistics revealed that two-thirds of all bids
submitted were disqualified. In other recent developments, the
state's Public Utility Commission (CPUC) announced how revenues
from the auctions will be allocated, and CARB (the program
administrator) set the stage for emissions-offset
projects. The second allowance auction is scheduled for
Authorized by the Global Warming Solutions Act of 2006,
California's cap-and-trade program aims to reduce the
state's greenhouse gas emissions to 1990 levels by 2020, a modest goal given the state's numerous
other initiatives aimed at reducing emissions. Approximately
75 participants, comprising utilities to large financial
institutions, were authorized to bid in the first auction; all 23
million allowances offered for 2013 compliance were
CARB initially reported that 3.1 bids were submitted for each
available allowance, but later issued a statement that just 1.06
"qualified bids" were submitted for each
allowance. According to CARB, only qualified bids are
used in the settlement process, and "a very small number of
participants exceeded their purchase limit, holding limit, or bid
guarantee." Bloomberg News cleared up the ambiguity when
it reported in December that one of the state's investor-owned
utilities (IOU) had erroneously submitted approximately 72 percent
of all bids due to an apparent misunderstanding of the bid
format. As a result, this IOU bought 40 percent more
allowances than it needed, even though most of its bids were
The state's electric utilities, including municipal
utilities, are allocated free allowances. However, the IOUs
are required to consign all of their allowances to auction, with
the proceeds remitted to ratepayers. For 2013, those revenues
will be at least $650 million, and could total more than $22
billion by 2020. In late December, the CPUC
announced that these revenues will be distributed to certain
industrial users that emit less than 25 MTCO2e per year, small
businesses (which are defined based on their electricity
consumption), and residential customers. The CPUC also determined
that it was not appropriate to use auction revenues for energy
efficiency or clean energy programs at this time, but part of its
reasoning was based on its own administrative processes. It
encouraged parties to propose increased funding for efficiency and
clean energy in other "appropriate proceedings."
Also in December, CARB approved two organizations to review
carbon-offset projects and issue offset credits. These
organizations will use CARB-approved methods of accounting to
determine emissions reductions for four types of projects:
forestry, urban forestry, dairy manure digesters, and destruction
of ozone-depleting substances. A covered entity can use
offsets to comply with up to eight percent of its obligation.
Finally, the second auction for 2013 allowances is scheduled for
February 19 and has a January 22 application deadline. The
reserve price is $10.71, which is slightly higher than the first
auction based on a predetermined formula. More than twice as
many 2013 allowances will be up for auction as compared to the
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