California’s Cap and Trade Auction Set for November 14

On November 14th, the California Air Resources Board (CARB) will be running the State’s first official cap and trade auction that is projected to provide the State with a multi-million or even billion dollar revenue stream to help reduce overall greenhouse gas emissions (GHG) in California. 

The auction will be the first of its kind in North America, once again putting California on the cutting edge of environmental protection. Authorized by AB 32, the State’s landmark climate change legislation, which requires the state to cut GHG emissions to 1990 levels by 2020, the law also authorizes the State to use market mechanisms to help achieve the overall GHG reduction goal. The idea behind these market mechanisms, or a carbon market, is to provide an economic incentive to cut GHG emissions. The program works by setting a statewide cap on about 85 percent of the total GHG emissions, which declines year by year. Companies under the cap, those that emit the most GHGs, then buy and sell permits, or allowances to emit GHGs at their facilities. Companies that are able to reduce their GHG emissions can sell their extra allowances to other companies that are unable or unwilling to make cuts. CARB will issue emission allowances equal to the total amount of allowable emissions – the cap – over a given period. As the overall cap declines, fewer allowances will be available and their cost will go up.

According to CARB, it is estimated that the first auction will generate between $660 million and $3 billion in the 2012-13 fiscal year. All proceeds from the auction will go into the State’s GHG Reduction Account and be appropriated in accordance with governing statutes, including last year’s AB 1532 (Chapter Number 807, Statutes of 2012) and SB 535 (Chapter Number 830, Statutes of 2012). By law, money raised from the auction will be invested in ways to further the goals of AB 32, funding solutions that allow California to reduce pollution, advance clean and efficient energy, expand low-carbon and public transportation, protect natural resources, and reduce the impacts of global warming. Twenty-five percent of proceeds are required to be used in ways that benefit disadvantaged communities. In future years, it’s estimated that the auctions may raise between $3 and $14 billion annually, depending on the price of carbon. There are still questions surrounding exactly how much revenue the auctions will generate, only the market will be able to tell. Starting in 2013, auctions will be held four times a year. 

CSAC was engaged in the discussions last year surrounding legislation (AB 1532/ SB 535) that sets the framework for how the state is going to invest the cap and trade auction proceeds. Counties seized an important opportunity to let it be known that local governments across the state have made significant strides to reduce GHG emissions through a variety of different approaches and should be eligible for cap and trade funds to help continue this work. Providing local governments with a funding source to engage in GHG reduction efforts will not only promote local sustainability, but it will help California meet its climate goals. CSAC was successful in our advocacy efforts to include local governments as eligible recipients of cap and trade funds. As the details of the investment plan are hashed out over the next year, CSAC will continue to stress the importance of local government as a key player with the ability to lead in the development of innovative and effective programs to meet AB 32 objectives. 

For more information about the State’s cap and trade program, visit the CARB website.