That’s it, it has started, for real! 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.
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 $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.
However, several pending regulatory developments could change the outlook for California’s program, and will be settled in the first half of 2013. For one thing, California is looking at “linking” its market with a similar program in Quebec. This would bring in a few more emitters, more carbon allowances too, and another layer of complexity as Quebec has its own rule, economic outlook and, oh yes, a different language too. Quebec emitters could buy from and sell to California companies, and vice versa.
The California Air Resources Board (CARB), the regulating agency, is also tweaking some fairly important program rules. One sets a price cap for the market – the agency is looking at simplifying the current provision, and setting the price cap at $50/ton. We’re far from this level right now, but when the cap tightens prices could climb quickly, so this is a way to reassure emitters in California that things will not get out of control.
Finally, CARB is making some more complex changes to the allocation rule and to the treatment of imported power. This is to ensure that the California program doesn’t cause “leakages,” where a decrease in in-state emissions causes a corresponding increase in out-of-state emissions.
What do you think – do carbon markets create more risks or opportunities for businesses?
*** Emilie Mazzacurati is Managing Director at Four Twenty Seven, a climate consultancy firm. Emilie has published extensively on federal climate legislation, regional programs and the interaction of carbon with other commodity markets. She will be teaching a training course on the Nuts and Bolts of California Cap-and-Trade in San Francisco on February 6th.
Image credit: Thomson Reuters Point Carbon
Emilie Mazzacurati is CEO of Four Twenty Seven (www.427mt.com), an award-winning market research and advisory firm that brings climate intelligence into economic and financial decision-making. Founded in 2012 and based in the San Francisco Bay Area, Four Twenty Seven helps Fortune 500 companies, investors and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain.