California Carbon Permits Sell Out at $11.50 in Auction

California, which releases more greenhouse-gas emissions than any other U.S. state except Texas, sold 22.5 million carbon allowances at auction for $11.50 each, just above analysts’ expectations.

Units of BP Plc, Chevron Corp., Edison International, PG&E Corp., Goldman Sachs Group Inc. and Morgan Stanley were among the companies that qualified to purchase the permits put up for sale Aug. 18, a report posted today on the state Air Resources Board’s website shows. The agency doesn’t disclose the names of buyers. The state received 1.14 bids for every permit offered.

Futures contracts linked to the allowances have been trading below $12 a ton since April even as a record drought plagues California, shrinking hydropower resources and increasing demand for more emissions-intensive, natural gas-fired generation. A surplus of allowances will keep the state’s carbon market oversupplied through at least 2020, according to Bloomberg New Energy Finance forecasts.

“Trading has been really slow,” Emilie Mazzacurati, managing director of the carbon market consulting company Four Twenty Seven in Berkeley, California, said by e-mail. The auction was expected to be “undersubscribed and clear at the floor price” of $11.34 a ton, the state minimum, she said.

Colleen Regan, a Bloomberg New Energy Finance analyst in New York, said by e-mail yesterday that permits were expected to clear near the floor price as “demand won’t be overwhelming.”

Futures Slip

Futures based on the permits traded at $11.83 and $11.84 a ton immediately after the auction results were released, down from yesterday’s settlement of $11.90 on the Intercontinental Exchange Inc., said Lenny Hochschild, head of global carbon markets for White Plains, New York-based Evolution Markets.

“Prices are lower but not significantly lower,” Hochschild said by telephone from San Francisco. “The results were roughly in line with expectations.”

Allowances, each permitting the release of a metric ton of carbon dioxide as early as this year, have fallen 12 percent in the past year, CME Group Inc. data show.

The 22.5 million permits put up for sale this week by California can be used as soon as this year. The state also offered 9.26 million that can be used in 2017, known as “advance” allowances. It sold 6.47 million of those for $11.34 each.

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.

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