California Carbon Auction Rebounds, Generates $475 Million

The twenty-fourth quarterly carbon auction held by California and Quebec sold nearly 89 percent of the carbon permits offered for current emissions, rebounding from a dip in the previous auction which sold only 37 percent, according to the results released on Aug. 25 by the California Air Resources Board. The auction generated about $474.4 million for California’s Greenhouse Gas Reduction Fund, much higher than the $25 million raised at the May auction.

The auction sold 100 percent of the future allowances offered for 2023 emissions, compared to just 20 percent in the last sale. The future allowances cleared at $16.73 each, slightly above the floor price.

Current allowances cleared at the floor price of $16.68 each, the same price as the prior auction, and lower than the record-high price in the February auction.

The May auction marked the first time that the quarterly auction failed to sell out in three years. The disappointing results were attributed to the economic slowdown caused by the COVID-19 pandemic, but it also drew attention to the need for reforms to avoid shortfalls to fund the state’s climate and air quality programs. To date, cap-and-trade auctions have raised $12.5 billion for the Greenhouse Gas Reduction Fund, with nearly $2 billion invested in clean air and low-carbon projects implemented statewide in 2019. The board’s independent advisory committee, in its annual report released earlier this year, recommended “rule-based approaches for adjustments to the allowance supply on an automatic basis that can be anticipated by market participants.”

The auctions are held under the cap-and-trade program, which places an economy-wide cap on major emitting sources. The annually declining emissions cap decreased by nearly 3.5 percent from 2019 to 2020. The program is a central part of California’s plan to reduce greenhouse gas emissions 40 percent below 1990 levels by 2030.