California pollution permits sell at highest price ever

Source: By Jonathan J. Cooper, Associated Press • Posted: Wednesday, August 23, 2017

SACRAMENTO, Calif. — California raised more than $640 million this month auctioning off permits for businesses to emit greenhouse gases as part of a program aimed at fighting climate change, according to state data released Tuesday.

Last week’s auction was the state’s first since lawmakers voted to extend California’s cap and trade program through 2030. It requires businesses, oil refineries and other polluters to obtain permits to be able to emit carbon, with the overall goal of drastically reducing emissions. Money raised through the auctions goes to projects such as high-speed rail, public transit and housing projects.

Demand for the permits rebounded in this month’s auction after more than a year of flagging interest as businesses waited to see if the program would continue.

Permits for near-term emissions sold for $14.75, while future allowances went for $14.55 as companies snapped up permits before prices rise over the next 13 years. The sale price was nearly $1 higher than the price last quarter.

The auction revenue pays for initiatives that reduce emissions or mitigate the impacts of climate change. Sixty percent of the money is earmarked for specific purposes, including the bullet train between Los Angeles and San Francisco, public transit and housing projects. Lawmakers are expected to decide this month on a spending plan for the remainder, including up to $840 million generated in previous auctions.

Cap and trade is a central part of California’s plan to reduce greenhouse gas emissions 40 percent below the level in 1990 by 2030. Polluters must obtain permits, known as allowances, for each ton of carbon that they release. The number of allowances goes down each year, increasing the cost of pollution over time and, proponents hope, increasing incentives for polluters to invest in cleaner technology.

The program was scheduled to expire in 2020 until lawmakers voted last month to extend it until 2030. Uncertainty about its future — along with a lawsuit challenging the legality of the auctions — was blamed for significantly reducing demand for permits for more than a year. The California Court of Appeal ruled earlier this year that the auctions are constitutional and the Supreme Court has declined to take the case.

“What’s good news now is that the carbon price more accurately reflects what will be required for California to get to its 2030 goal,” said Erica Morehouse, an attorney for the Environmental Defense Fund, which supports the cap and trade law. “It didn’t reflect that as accurately before this auction.”

The strong demand now reflects polluters stocking up on allowances before 2020, when the state will get more aggressive about winding down the number available, said Chris Bush, research director for Energy Innovation, a San Francisco company that provides advice and analysis on energy and environmental policy.

An abundance of allowances that will be used down the road could stifle the future environmental benefits of cap and trade, he said.

“That’s going to mean extra emission in the future,” Busch said.