Sold! High Volume, Low Prices Mark California’s First Carbon Allowance Auction

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California’s first carbon allowance auction on November 14, 2012 featured plenty of demand but a lower-than-expected closing price, based on results released on Monday by the California Air Resources Board (CARB). California’s cap-and-trade program requires that certain regulated entities must acquire a carbon allowance for each metric ton of greenhouse gas they emit in the state beginning in 2013. CARB put up for auction 10% of the allowances issued for the first (2013-14) and second (2015-17) compliance periods at a minimum price of $10 per allowance. Approximately 75 entities submitted bids.

The auction for 2013 vintage allowances closed at a settlement price of $10.09 per allowance. (Under the auction’s procedures, CARB receives sealed bids electronically, allocates the available allowances starting with the highest bidder, and charges to all winning bidders the lowest price that results in the purchase of allowances.) All 23.1 million allowances offered were sold, and CARB received bids for over three times that many. Bids ranged from $10 to $91.13 per allowance, with a median of $12.96. The Hirfindahl-Hershman Index (HHI), which measures the distribution of the allowances among all winning bidders, was 1133 (out of a possible 10,000 if one bidder had purchased all available allowances). Ninety-seven percent of the allowances sold were purchased by entities with a specific compliance obligation in the cap-and-trade program, while the remaining allowances were presumably purchased by others for trading on the secondary market.

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