Results from the Western Climate Initiative’s May auction were released today, and again demonstrate strong demand for allocations and are generating revenue that will drive meaningful investment for California communities. Earlier this month, the California Air Resources Board (CARB) also outlined the role of its cap and trade program in its draft scoping plan, which aims to chart a course toward the 2030 and 2045 climate goals. from California. However, there is great room for improvement: CARB needs to do more to ensure that the emissions cap is an effective safety net and can provide the certainty of near-term emission reductions.

Distribution of auction results

  • The 58,331,300 vintage quotas currently offered for sale have been purchased, resulting in the seventh consecutive sold-out auction.
  • The current bid stood at $30.85, $11.15 above the floor price of $19.70 and $1.70 above the February settlement price of $29.15. This is the third consecutive auction settlement record price.
  • All of the 7,942,750 future vintage quotas offered for sale have been purchased; these allowances can be used for compliance purposes from 2025. This is a rebound from last quarter’s auction, when allowances for future use were just short of a sale.
  • Future vintage allocations settled at $28.13, $8.43 above the floor price of $19.70. This is the second highest settlement price of an early auction after the November 2021 price of $34.01.
  • May’s auction generated nearly $1.1 billion for California Climate Investments, which continues to funnel resources to some of the most overburdened communities in the state.
  • Quebec has generated nearly US$300 million (almost C$380 million) for the province’s Electrification and Climate Change Fund.

What factors may play with these results?

These strong results from the most recent auction are part of a trend of strong demand — and rising prices — for allowances. As we saw earlier, there are a few potential reasons behind this:

1. Higher emissions expectations. Even as California’s (now normal) drought conditions worsen, the state is also forecasting a possibly record-breaking summer. Water shortages combined with extreme heat mean electricity demand could explode this summer and fall. Meeting this demand means potentially more polluting electricity resources, as we have less hydroelectricity available and may need to burn more natural gas to keep the lights and air conditioning on.

2. Interest of investors. It appears that more financial players are buying allowances, which adds to the overall demand for allowances and may help drive up the price. If their motivation is to realize a return on investment, this market activity can also contribute to climate progress. Higher allowance prices, as we have seen in recent auctions, can help push emissions reductions forward in time. Instead of waiting to invest in emission reduction technology, for example, an industrial entity might decide it is better to make that investment now. This means that emission reductions occur sooner, reducing the cumulative impact of greenhouse gas emissions on the climate. Cumulative reductions are essential to reduce the worst impacts of climate change.

3. The draft framework plan sends a mixed message. The California Air Resources Board rightly recognizes that the most important function of an emissions cap is to act as a safety net and provide certainty to meet reduction targets. However, the framework plan project stops short of describing in detail the quantitative role that CARB expects the program to play as the state moves toward goals in 2030 and 2045, beyond predicting that it “will likely play a reduced role” compared to the 2017 framework plan.

At the same time, CARB recognizes that there is uncertainty in the course they have charted in the draft scoping plan in terms of how quickly the technology can be developed and deployed, among a myriad of other factors. , and they undertake to analyze this uncertainty. . If the uncertainty is high, the cap could play a bigger role than CARB predicts. Clearly relying on the cap to close a potentially large emissions gap could indicate a long-term reliance on the cap-and-trade program, contributing to the rebound in demand for future allowances after the slight decline during from the February auction.

However, the more pressing question than the relative role of cap and trade in reducing emissions is whether the emissions cap – which ensures that covered sources will not exceed the pollution limit – is correctly calibrated. In the first installment of a four-part series on the draft framework plan, we explain why the plan should reflect a stricter emissions cap to ensure that California’s 2030 climate goal is met.

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