California’s carbon cap-and-trade auction system has bounced back after a couple of less than stellar quarters, likely due to greater certainty over the state’s long-term plans and an expected rise in permit prices in the new year, Toronto-based Environmental Defence reports in a blog post last week.
The cap-and-trade results matter in Canada, as well as the U.S., since jurisdictions in both countries are participating (or plan to) in the carbon market established under California’s Western Climate Initiative.
In California’s most recent quarterly auction November 15, nearly 90% of the available carbon permits sold, compared to 35% in August and only 10% in May. “Reduced demand for permits earlier this year was largely blamed on an over-saturation of permits in the market, along with some uncertainty about the future of California’s cap-and-trade system after 2020 due to looming legal challenges,” Environmental Defence notes.
But in late August, the state extended the program’s sunset date from 2020 to 2030, writes ED Clean Economy Campaign Coordinator Mikayla Wujec. “The solid sales in the recent auction are a vote of confidence that California’s system will withstand the legal challenge, and that cap-and-trade is there to stay, despite the recent United States election.”
She notes that a scheduled increase in the floor price of greenhouse gas permits—from $12.73 per tonne now to about $13.50 per ton in 2017—likely pushed companies to buy in sooner rather than later.
Wujec points out that cap-and-trade revenue in California has funded an array of GHG reduction initiatives, from high-speed rail to sustainable communities to energy efficiency. But “it is essential to remember that carbon pricing’s goal is to reduce carbon emissions, not generate revenue.” In California, emissions covered by the cap-and-trade system fell 1% from 2008 to 2014, while GDP rose 6% and employment increased 2%, “again signaling that economic advancement and emissions output aren’t an either-or choice.”