California-Quebec Carbon Sells Out as Market Expands to FuelLynn Doan
California and Quebec, which together run North America’s biggest carbon market, sold out of greenhouse-gas allowances at $12.21 each, about a dime above the minimum price set.
Agencies received 1.14 bids for each allowance on sale Feb. 18, the California Air Resources Board said Wednesday on its website. Units of companies including BP Plc, Chevron Corp., JPMorgan Chase & Co. and Morgan Stanley qualified to participate. Polluters buy allowances, each permitting the release of a metric ton of carbon-dioxide equivalent, to cover emissions. The lowest price allowed for them, known as “the floor,” was set at $12.10.
The programs established by California and Quebec are designed to shrink greenhouse-gas emissions contributing to warmer temperatures, rising sea levels and worsening fires and droughts. Last week’s auction was the first held by the governments since they they began imposing pollution limits on fuel suppliers. Carbon-futures trading reached a record in January on speculation that the suppliers would boost demand in the market.
“The current auction cleared at the smallest premium to the floor price since California’s first auction in the fourth quarter of 2012,” Colleen Regan, a Bloomberg New Energy Finance analyst in New York, said by e-mail on Wednesday. The results suggest “a decreasing appetite for allowances in an exceedingly oversupplied market.”
About 73.6 million allowances, each permitting the release of 1 metric ton of carbon dioxide as soon as this year, were on sale. An additional 10.4 million permits that can be used as early as 2018 were also auctioned. The 2018 allowances sold for $12.10 each. The governments received 1.02 bids for every one of those up for auction.
California has capped greenhouse-gas emissions from industrial polluters since 2013 and began imposing limits on transportation fuel suppliers on Jan. 1. Companies must either collect enough allowances to cover their emissions or find a way to curb their pollution. The total allowances available shrink with the cap over time to achieve a roughly 15 percent reduction in gases by 2020.
Futures for California’s 2015 carbon allowances for March delivery rose 2 cents on Tuesday to settle at $12.65 a metric ton, data compiled by Atlanta-based Intercontinental Exchange Inc. show. The same contract closed at $12.84 on the day of the auction.
By Jan. 9, 23,941 futures contracts had been traded for the month, eclipsing a record set in July 2014, according to ICE. By the end of January, total volume had surpassed 43,000, the exchange said. The bulk of the trading was done for allowances that could be used this year and next.
During the allowance 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.