Tuesday, January 15, 2013

California Carbon Allowances and Market Trading

Carbon allowances are now available for sale in California. Companies that emit more than 25,000 tons of carbon-dioxide equivalent a year (CO2e) in the power, oil, and industrial sectors will now have to turn in permits for every ton they emit this year and the years to come. Things are moving fast in California right now, so here’s a primer on what’s happening and what to expect for the coming months.

Are people really buying carbon permits?

Yes. Currently, California Carbon Allowances (CCAs) are trading for about US$15 a ton on the secondary market. Point Carbon reported a big spike in volume traded since January 1st, as a lot of new companies have entered the markets and are cutting their teeth on West Coast-style carbon trading.

The Governor’s California budget, released on January 10, shows that the state expects to raise $200 million for budget year 2012- 2013, and $400 million the following year. Auctions let private companies buy allowances directly from the state. As explained in an earlier post, the permits auctioned have a minimum (reserve) price of US$10.71 per ton, but in reality those permits could sell for a higher price if a lot of compliance entities decide to buy allowances rather than reduce their emissions.

What happens next?

Companies are due to surrender their carbon allowances only in 2014, which gives them time to become more familiar with the program and gives time to the market to settle on its "fair price." The program has two lawsuits pending against specific provisions, but none that would threaten the very existence of the market at this point.
This is relevant for the naysayers in Australia too, with the projected carbon price now reduced to A$15 per metric tonne in Australia.

It does seem that the developed world is slowly but inexorably moving to a carbon price.

Have you reconciled that you will have to moderate your carbon consumption too?

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