California Sells Carbon Permits for $11.48 Each at Auction

California, the second-largest carbon-emitting state in the U.S., sold 16.6 million carbon allowances at auction for $11.48 each, roughly in line with analysts’ expectations.

Units of Chevron Corp. (CVX), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and PG&E Corp. (PCG) were among the companies that qualified to buy permits in the Nov. 19 auction, a report posted on the state Air Resources Board’s website today showed. The agency doesn’t disclose the names of winning bidders. The state received 1.82 offers for every permit put up for sale.

The credits, each approving the release of a metric ton of carbon, are traded as part of the world’s second-largest carbon market, established by California last year in an effort to cut greenhouse-gas emissions to 1990 levels by 2020. Futures based on the permits have declined 22 percent this year on speculation that the market will remain over-allocated for at least another four years.

The auction results were “kind of right in line with expectations,” Mark Struk, senior vice president of environmental trading and advisory for Alpha Inception LLC, a Houston-based consulting firm, said by telephone. “The market is seeing this as a non-event. Prices are basically exactly the same as before.”

Futures linked to 2013 allowances for December delivery were unchanged yesterday at $11.75 a metric ton, according to data compiled by CME Group (CME) Inc. The contract slumped to $11.70 a ton on Nov. 19, a one-year low.

2016 Permits

California, the largest carbon-emitting state after Texas, this week also sold 9.56 million permits that can be used for compliance beginning in 2016. They went for $11.10 a metric ton, above the $10.71-a-ton “floor,” the minimum price allowed by the state.

California’s 2013 allowances were also expected to sell close to the minimum, according to an Oct. 31 report by Bloomberg New Energy Finance. Carbon markets consulting firm Four Twenty Seven said in a Nov. 18 outlook that permits would clear in the range of $10.71 and $10.85 a ton.

Companies bidding in the auction had “an opportunity to snatch up allowances near the floor price,” Colleen Regan, a Bloomberg New Energy Finance analyst in New York, said in the research note. “If they wait three months, allowances will be offered at a minimum of $11.41.”

California carbon markets still have “several bearish years ahead,” Regan said in the note, which projects that California’s emissions will remain under the limits established by the state until 2017.

During the auctions, companies submit confidential bids for the number of allowances they want at a specific price. The highest bidder is awarded permits first, then the second-highest, and so on until the all of the permits for sale have been called for. Then all bidders pay the price of the lowest winning offer.

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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