Bloomberg News

California Carbon Allowances Sell Out at Auction for $11.50 Each

May 21, 2014

California, the second-most polluting state in the U.S., sold all 16.95 million carbon allowances at auction for $11.50 each, in line with analysts’ expectations.

Units of Chevron Corp. (CVX:US), Exxon Mobil Corp. (XOM:US) and Royal Dutch Shell Plc (RDSA) were among the companies that qualified to purchase the permits put up for sale May 16, 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 1.46 bids for every permit offered.

The allowances, each permitting the release of a metric ton of carbon, were offered as futures linked to them traded near a five-month low on speculation that the market will be oversupplied through at least 2020. State regulators approved additional free permits for polluters including natural gas utilities and oil refiners last month even as a record dry spell shrinks California’s hydropower generation, increasing demand for more emissions-intensive, gas-fired power plants.

“Tales of low hydroelectric output due to the California drought and the promise of new industrial emissions in Quebec have been unable to move the needle in an exceedingly oversupplied market,” Colleen Regan, a Bloomberg New Energy Finance analyst in New York, said in a May 19 report.

Futures Prices

Futures based on permits that can be used to cover emissions as early as this year settled yesterday at $11.70 a ton, data compiled by CME Group Inc. (CME:US) show. The allowances, for delivery in December, have fallen 2.1 percent in the past year.

Credits traded as part of the carbon market jointly run by regulators in California and the Canadian province of Quebec will remain oversupplied until 2027, according to BNEF data.

The 16.95 million permits put up by California, which released more emissions than any U.S. state except Texas in 2011, 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 4.04 million of those for $11.34 each.

Allowances were expected to sell out near the minimum price allowed by the state, or the “floor” price, of $11.34, Regan said. An auction that Quebec is scheduled to hold May 27 may not sell out, she said.

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 editors responsible for this story: Dan Stets at dstets@bloomberg.net Charlotte Porter, Richard Stubbe


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Companies Mentioned

  • CVX
    (Chevron Corp)
    • $119.17 USD
    • 1.97
    • 1.65%
  • XOM
    (Exxon Mobil Corp)
    • $96.0 USD
    • 1.55
    • 1.62%
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