A tentative ruling was issued yesterday in the related cases California Chamber of Commerce v. California Air Resources Board (ARB) and Morning Star Packing Co. v. ARB, pending before the Sacramento County Superior Court. The cases challenge the legality of ARB's cap and trade auctions under two theories: (1) the cap and trade auctions exceed ARB's authority under AB 32, and (2) the auctions amount to an illegal tax adopted without the requisite two-thirds approval of the California Legislature. The Court tentatively ruled in ARB's favor that the agency's implementation of a cap and trade auction system is within the scope of AB 32, which delegated ARB authority to design the distribution of emissions allowances. The Court did not rule on whether the allowance auctions constitute an illegal tax. The tentative ruling outlined questions on this topic for oral argument, which was heard yesterday. A ruling on the tax challenge is expected in the next 90 days.
ARB held its most recent quarterly auction on August 4, 2013. 2013 vintage allowances sold for $12.22. In the advance auction of 2016 vintage allowances, held concurrently, allowances sold for $11.10.
The results are in for the third California cap and trade auction. A metric ton of CO2e went for $14 in the third auction, which took place on May 16, 2013. The top bid at the auction was $50.01, with a mean bid of $16.67 submitted. All of the 14.5 million 2013 vintage allowances available at the auction were sold, with 1.78 bids submitted for each available allowance. Demand was down compared with the second auction, that took place in February 2013, where roughly 2.5 bids were received for every available 2013 vintage allowance. In the third auction, just over 90% of the allowances were purchased by entities that have compliance obligations under the cap and trade program. Allowance prices have continued to slowly rise, with a settlement price of $10.09 per metric ton CO2e in November 2012, $13.62 in February 2013, and $14 in this most recent auction. See my earlier blog post for some details on auction rules.
CARB also held an advance auction of 2016 vintage allowances on May 16. 7.5 million of roughly 9.6 million allowances available were purchased at this advance auction. The settlement price was the same as the minimum bid price allowed, $10.71 per metric ton CO2e. Though all of the 2016 vintage allowances offered were not sold in the third advance auction, demand rose over the second advance auction held in February 2013. In the third advance auction, CARB received about eight bids for every ten 2016 vintage allowances available; in the second advance auction, there were about five bids for every ten 2016 vintage allowances.
An Allowance Price Containment Reserve sale will take place June 27, 2013. The next allowance auction will be held August 16, 2013.
On February 19, 2013, the California Air Resources Board held its second auction of greenhouse gas (GHG) emission allowances for its Cap and Trade Program. This was the first quarterly auction for 2013; the first auction was held November 14, 2012. All ‘covered entities’ – GHG emitters regulated under Cap and Trade – were eligible to participate in the auction. Voluntarily associated entities, i.e. groups who wish to retire allowances or sell allowances on the market, were also eligible to participate. Some key rules of the auction:
- Participants submit sealed bids, for multiples of 1,000 allowances.
- For 2013 auctions, the minimum bid is $10.71 per allowance.
- One allowance equals the right to emit one metric ton of CO2 (or other GHGs in CO2-equivalent terms).
- Allowances are awarded beginning with the highest bid and proceeding through successively lower bids until the total number of allowances available for sale have been awarded.
- The final price of allowances for all participants in the auction, the “settlement price,” is the lowest bid received at which the supply of available allowances for sale is exhausted.
In this auction, the settlement price for 2013 vintage allowances was $13.62. All of the approximately 13 million allowances offered for sale were sold. The auction also included the advance sale of 2016 vintage allowances. The settlement price for 2016 allowances was $10.71. 4,440,000 2016 vintage allowances were sold, approximately half the total number offered for sale. There were approximately 2.5 bids for every one allowance, compared with approximately one bid for each allowance during the November 2012 auction. Not surprisingly, auction participation is up, with covered entities facing compliance obligations this year.
The settlement prices for this auction were slightly higher than those of the first auction, held November 14, 2012. The settlement price for 2013 vintage allowances in November 2012 was $10.09. Advance sales of 2015 vintage allowances were settled at $10, the minimum price, in the November 2012 auction. The Air Resources Board will hold an allowance price containment reserve sale on March 8, 2013, offering allowances at a three tiers of fixed prices.