Picking Up Steam? CARB Reports that California’s Second Carbon Auction Exceeds Price Expectations

by Morrison & Foerster LLP
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California’s second auction of greenhouse gas (GHG) allowances exceeded expectations, with allowances clearing above both the reserve price and the price predicted by leading market analysts. All of the 12.9 million allowances available for use in 2013 sold at the February 19 auction, with a clearing price of $13.62. (Under auction rules, bidders submit sealed bids electronically to the California Air Resources Board (CARB), which allocates available allowances starting with the highest bidder, then charges to all winning bidders the lowest price that results in a purchase.) The reserve price was set at $10.71 per allowance, and Bloomberg New Energy Finance had predicted clearance at $12.30. The results signal a more robust level of market involvement than was seen at the first auction last November, when 2013 allowances cleared at $10.09, just above the $10.00 floor price. The credibility of the November auction results was seriously undermined when CARB disclosed, during Christmas week, that one bidder had accidentally purchased $16 million worth of allowances it never intended to buy. These new results, assuming they are accurate, suggest that at least the current market is strong.

According to results released by CARB, 91 qualified bidders participated in last week’s auction, including such major players as Chevron USA, Exxon Mobil, and Shell Energy North America. The ratio of qualified bids divided by 2013 allowances available for sale was 2.47. (This time, it appears that CARB was careful to distinguish “qualified” from “submitted but disqualified” bids. Last November, the agency initially failed to do so, causing the volume of qualified bids to appear inflated. Our summary of CARB’s restated auction results is available here.) Approximately 88% of allowances were purchased by entities with compliance obligations, with the remainder presumably purchased for trading on secondary markets.

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