What California's Carbon Market Is Doing Right

The second auction of carbon permits for the world’s second-largest carbon market beat analysts’ expectations—but can it drive real environmental results?

The California Air Resources Board, which currently runs the world’s second largest carbon market, confirmed Friday that permits to emit greenhouse gases for the rest of 2013 closed at $13.60 a ton, $3.53 up from last year, $2.90 above the minimum price, and $1.30 up from analysts’ peg. These results stand in stark contrast to the world’s largest market, the European Emissions Trading System, where prices plunged to less than $4 a ton this month. In other words, California’s cap and trade system is working: Companies are buying carbon credits at market rates to make sure they aren’t penalized by the state for emissions they produce later.

"Of the $176 million generated from the sale of current vintage allowances, just under $140 million will be returned to the state’s electric utilities for the exclusive benefit of their customers," wrote Alex Jackson of the Natural Resources Defense Council. "For the millions of California households that draw power from one of the state’s three large electric investor-owned utilities—PG&E, Southern California Edison, and SDG&E—that will take the form of a historic climate dividend."

The good news came amid some embarrassing news that a trading "glitch" in the first auction, last November, led to the utility Southern California Edison erroneously putting in 72% of all bids in the auction.

That said, environmental groups lauded the successful auction last week, which will show up in the pockets of Californians.

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  • Steve Consilvio

    How will this money end up in to pockets of Californians? When the businesses pay more for the right to pollute, then they will charge more for their goods. The Californians will pay all the inflation associated with the rising price of credits.

    Classic double-think. Ring the bell. Orwell wins again.

    As Dillon posts, he is profiting from the system. The environment is not being protected. The pollution is being measured and accepted. The money flows in a different eco-system entirely. In essence, they have created a toll-road for polluters that is being privately managed. It is great for those who run the toll-road, and terrible for everyone else. 

  • Dillon Lanius

    Note: The complexity of managing an economy and optimizing production/price levels with 'flexible' mechanisms to ensure the economy meets political goals is why Soviet Russia fell apart. 

    California's Cap & Trade system is to an outsider a laudable attempt to keep the movement to mitigate global warming alive. The devil is in the details which are quite thick for an outsider. My perspective comes from having worked in emissions trading markets from the Chicago Climate Exchange to the EU ETS and been involved in UN Clean Development Mechanism.  I have personally profited from 'market-based climate solutions' that are orchestrated by very passionate, smart people who want(ed) to change the world. I am one of them.California ETS will pay salaries for administrators, auditors, auctioneers, brokers, traders, developers, and create a few new very profitable businesses from creating, selling, and trading emission permits. What it won't do is address the largest category of GHG emissions from California which are from passenger vehicles or shift energy generation in/out of California from coal burning power plants to natural gas or renewables (need ~$60 tCO2e price per permit).Sure you get the refineries and industrial cement covered but these emissions are related to energy use for production which they are already working to reduce to maximize profitability! It is work around the edges waiting for a techno miracle. I pray we may find one. If we want to send the markets a price signal to reduce greenhouse gas emissions go with a carbon tax for fossil fuel. It is transparent, incentivizes action, a broad based application with low-cost administration, and proceeds are distributable. 

  • Econenthusiast

    Personaly I think we should let the FED issue currency (not a loan) for the sole purpose of constructing clean energy plants.  This would take some of the burden off of industry and consumers alike.  It would be a simulus to the economy that the FED could regulate.  I just don't see a down side to it.