Bloomberg News

California Rejected 66% Carbon Permit Bids Last Month

December 06, 2012

California, the second-biggest carbon polluter in the U.S., behind Texas, said companies offered an average $15.60 a ton for emissions allowances in a state auction in November.

The price exceeds a preliminary figure of $13.75 a ton issued last month for all submitted bids because some offers were subsequently rejected for violating purchasing and holding limits or bid guarantees, the state Air Resources Board said on its website today. The state disqualified 66 percent of companies’ offers from the auction, according to Bloomberg’s calculation of the data provided by the state.

The bids were thrown out “during the auction settlement when we determined who exceeded holding limits, purchase limits or bid guarantees,” Dave Clegern, an air board spokesman in Sacramento, said by e-mail. “In the future we will be releasing all the information at once, including quantities of both submitted and qualified bids.”

After the disqualifications, the state had 1.06 legitimate bids per permit for the 23.1 million permits put up for sale on Nov. 14. Last month the state reported it had 3.1 bids for every permit available.

“The 1.06 number is a big surprise,” William Nelson, a Bloomberg New Energy Finance analyst in New York, said by e- mail. “The auction barely squeaked by.”

Futures Unchanged

Futures based on California carbon permits for 2013 were unchanged yesterday at $13 a ton. Prices jumped to a six-week high of $13.20 on Dec. 3 as more companies were seen trading contracts and on speculation that Edison International (EIX:US)’s San Onofre nuclear power plant, shut since January because of tube wear, may remain down next year.

California, the world’s ninth-largest economy, developed an emissions program after the U.S. failed to come up with a national system in 2010. The air board sold all 23.1 million permits offered at the auction for the first compliance period of the state’s cap-and-trade program, which starts Jan. 1. They went for $10.09 a ton, 9 cents above the $10 floor price.

Mary Nichols, chairwoman of the air resources board, described the auction results on Nov. 19 as a “sign that we’ve got a vibrant and successful market.”

Capping Emissions

The state created the world’s second-biggest carbon market, behind the European Union’s emissions trading system, and will eventually regulate 85 percent of emissions released within its borders.

California plans to cap carbon emissions beginning next year from power generators, oil refineries and other industrial plants. The limit will decline each year to achieve a 15 percent reduction in emissions by 2020. Companies must surrender carbon permits to cover their emissions over three phases of the program. Those that discharge less than their cap can sell their spare allowances.

The state is giving away about 90 percent of the permits at the onset and selling the rest in quarterly auctions.

The air board sold 5.58 million out of the 39.5 million allowances it put up for auction last month to be used in the second phase of the program, beginning in 2015. The advance permits cleared at $10 each, the lowest price allowed by the program, known as the floor price.

More than 70 companies qualified to bid in the first auction, with BP Plc (BP/), Chevron Corp. (CVX:US), Exxon Mobil Corp. (XOM:US), Royal Dutch Shell Plc (RDSA), Tesoro Corp. (TSO:US) and Valero Energy Corp. (VLO:US) among the refiners who registered to participate. Power utilities included Pacific Gas & Electric Co. and Southern California Edison. Morgan Stanley (MS:US) and Royal Bank of Canada also qualified to bid.

The agency plans to sell at least 56.8 million allowances for the first phase of the program next year and 38.2 million permits for compliance in 2016. The lowest allowable price during next year’s sales will be $10.71 a ton.

The board is scheduled to hold auctions Feb. 19, May 16, Aug. 16 and Nov. 19.

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

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net


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Companies Mentioned

  • EIX
    (Edison International)
    • $59.82 USD
    • 1.06
    • 1.77%
  • CVX
    (Chevron Corp)
    • $111.49 USD
    • -0.31
    • -0.28%
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