In a major test of California’s crusade against climate change, California businesses spent another $935 million last week on greenhouse gas pollution permits, state officials said Tuesday. It was one of the most successful carbon permit auctions the state has held to date.
The latest results in California’s fight against climate change will affect prices on a range of goods from gasoline to cement.
The California Air Resources Board announced Tuesday that businesses snapped up every carbon-emission permit that the agency put up for sale at last week’s auction. It was the first complete sellout of carbon permits since November 2015, said agency spokesman Dave Clegern.
The results represented a sign of confidence in the state’s cap-and-trade program. Demand for carbon permits had faltered over the past year amid uncertainty whether the Legislature would extend the program past its 2020 expiration date. Tuesday’s results were the first since the Legislature, in a landmark victory for Gov. Jerry Brown, agreed to keep cap-and-trade going through 2030.
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“Auction demand was the strongest in years,” said Chris Busch of Energy Innovation, an energy policy analysis firm in San Francisco.
Cap-and-trade is a market-based approach for curbing carbon emissions. Hundreds of food processors, manufacturers and other industrial firms are required to obtain emissions permits to spew carbon into the air. Most permits are handed out for free, but companies that need extras have to buy them, either from other polluters with surplus permits or from the state’s auctions. The state auctions are run every three months, and companies have spent around $6 billion on permits since the program began in 2012.
The lion’s share of the permits sold last week at a median price of $14.75 per ton of carbon. A smaller auction for permits that can’t be used until 2020 sold at $14.55.
While total revenue in the auction was $935 million, only about $640 million will go to the state’s greenhouse gas fund, which is used to finance high-speed rail and other “green” projects. The rest of the proceeds will go to California’s electric utilities, which are treated differently than other businesses.
The volume of permits in circulation – the “cap” – drops slightly each year, reducing the total amount of emissions. The minimum price for permits goes up, which is designed to prod companies into finding ways to reduce their carbon footprint.
Cap-and-trade isn’t just for heavy industry. Because fuel wholesalers are among those that have to get permits, the cost of cap-and-trade has raised the price of gasoline an estimated 11 cents a gallon at the pump. The per-gallon price impact on gas could double starting in 2020, when the cap is scheduled to decline more quickly.
Utilities are given all of their permits for free, in an effort to buffer households from some of the financial impact of cap-and-trade. At the same time, the utilities are required to auction off the permits they’ve been handed, and then jump into the auction to purchase whatever permits they need to cover their carbon pollution.
Despite problems with its ‘cap and trade’ carbon market, California has made progress in reducing greenhouse gas emissions. Here are the six main sources of greenhouse gas emissions in the state. Nathaniel LevineThe Sacramento Bee