Bloomberg News

BNEF Lowers California Carbon Price Forecasts After First Sale

November 20, 2012

California carbon allowances will sell for $14.06 each next year, down 2.7 percent from previous forecasts, Bloomberg New Energy Finance said after permits cleared in an auction near the lowest allowable price.

The California Air Resources Board sold all 23.1 million carbon permits offered at a Nov. 14 auction for the first compliance period of the state’s emissions program starting Jan. 1, the agency said on its website yesterday. The allowances cleared at $10.09, 9 cents above the $10 “floor price,” or the lowest price allowed.

Power, oil and gas companies “were bidding for large volumes near the auction floor price,” Thomas Marcello, an analyst for Bloomberg New Energy Finance in New York, said in an e-mailed research note. “We suspect that the clearing price was set by these relatively low-priced, large-volume bids.”

Carbon futures dropped to a record low of $11.65 a ton yesterday after state regulators released the results of the auction, which created the world’s second-biggest carbon market, after the European Union program. California’s system will eventually cover 85 percent of emissions in an economy valued at $1.74 trillion last year.

Bloomberg New Energy Finance lowered its price forecasts for contracts expiring this December, as well as December 2013, 2014 and 2015. Those expiring this December will sell at $11.90, down from the $12.67 that it projected on Nov. 8.

Lawsuit Filed

The California Chamber of Commerce filed a lawsuit Nov. 13 challenging the state’s authority to sell permits, calling the allowance auction an unconstitutional fee.

“Compliance entities may have considered the possibility that the courts may eventually rule in favor of the plaintiff” when deciding to buy permits in last week’s auction, Marcello said. Companies would have to seek compensation for the allowances they bought in auction through the court system should the sale be invalidated, he said.

Futures contracts based on carbon permits for December 2013 expiry climbed 5 cents to $11.70 a metric ton today, according to data compiled by CME Group Inc. (CME:US)’s Green Exchange in New York. Prices are down 26 percent for the year.

The state also sold 5.58 million out of the 39.5 million allowances it put up for auction to be used in the second phase of the program, beginning in 2015. The advance permits cleared at the $10 floor price.

Bloomberg New Energy Finance’s previous forecasts assumed that 25 percent of the advance allowances would go unsold as fuel distributors waited to begin stockpiling credits.

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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