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Carbon Emissions Now Have a Price - in California

It's official - for large industrial sources in California, the cost for emitting a ton of carbon dioxide or equivalent is $10.09 - nine cents above the minimum price set by the Air Board. That was the price paid at the first auction on Nov. 14.
November 21, 2012, 12pm PST | Irvin Dawid
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 "By putting a price on carbon, we know we are beginning the process of breaking our dependence on fossil fuels", explained Mary Nichols, chairwoman of the CA Air Resources Board during a conference call with journalists on Nov. 19 when the details of the first auction of cabon permits or allowances were revealed.  Dana Hull of the Bay Area News Group covered the call.

"The state did not disclose how many companies participated in the historic auction. But there were three times as many bidders than buyers, a sign that the business community is taking the new carbon market seriously."  In addition, "97 percent of the allowances were purchased by 'compliance entities', or companies that must reduce their greenhouse gas emissions", as opposed to large banks as some had speculated.

Nichols called the auction a success - and her claim is vindicated in that "all of the 23.1 million permits offered at the auction to cover 2013 emissions were purchased, raising $233 million and calming fears that the market would be under-subscribed."

As noted here earlier, some of that money will be directed to the state's utility customers in the form of 'climate dividends'.

Listen to KQED Science Editor Craig Miller explain the details of the auction to KQED's Tara Siler, and "why it took nearly a week for the results to be released." Miller points to the disadvantages and benefits of the low price - namely a low price may not create enough of an incentive to reduce emissions - but it also means that the companies are less likely to leave the state to reduce costs - which is a controversial aspect of the program, and a major reason why the Chamber of Commerce is suing the Air Resorces Board.

The San Francisco Chronicle's David R. Baker writes that "many analysts had predicted that each permit, which allows the holder to release one ton of carbon dioxide and other heat-trapping gases into the atmosphere, would sell for $12 or more."

Only large industrial sources, such as power generators, oil refineries, and cement plants need purchase the permits at this time, as Dana Hall explains.

"Under the program, the state sets an overall emissions 'cap' for individual California companies that emit more than 25,000 metric tons of carbon dioxide or other greenhouse gases. Those that reduce emissions below their cap can sell or trade their unused allowances to companies that exceed their limits. If the system works as designed, the most efficient companies will be financially rewarded, polluters will pay and greenhouse gases will be dramatically reduced."

Full Story:
Published on Tuesday, November 20, 2012 in San Jose Mercury News
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