California Carbon Auction May Trigger Price Drop, BNEF Says

California’s first auction of carbon-emissions permits may cause prices to fall by offering too many allowances too quickly, according to Bloomberg New Energy Finance.

Companies may be particularly reluctant to buy permits that aren’t valid until 2015 if they can hold off and buy them later, William Nelson, a Bloomberg New Energy Finance analyst in New York, said in an e-mailed statement.

The state Air Resources Board on Nov. 14 will sell at least 21.8 million allowances to be used during the first compliance phase of the cap-and-trade program, designed to help curb California’s greenhouse-gas emissions by 2020 to 1990 levels. The agency will also offer about 39.5 million permits for the second compliance phase beginning in 2015.

“Most companies are willing to stockpile credits to cover emissions one to two years into the future, whereas there is a four-year span between the November 2012 auction and the date that 2015 allowances are actually due,” Nelson said.

California carbon futures have dropped 22 percent from this year’s peak of $20.25 a metric ton in July on speculation that the program may be delayed and that demand for permits has weakened. The state is set to create the world’s second-largest carbon market, behind only the European Union’s emissions trading system.

2015 Permits

Prices for 2015 permits will reach $10 a metric ton should allowances go unsold in the November auction, according to Bloomberg New Energy Finance. California lawmakers, who are counting on at least $660 million in revenue from auctions held in the 2012-2013 fiscal year, may “miss that mark,” BNEF’s research showed.

Carbon permits for delivery in December 2013 dropped 40 cents to $15.35 a metric ton, the lowest since June 7, data compiled by CME Group Inc. (CME)’s Green Exchange shows.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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