California's official carbon market kicked off this week with an uptick in trading, as businesses began accounting for their greenhouse gas emissions in earnest.
No lawsuit against the program accompanied the official start date of Jan. 1, as many had anticipated. Instead, appetite for California's carbon allowances grew, reflecting confidence in the burgeoning, first-in-the-nation econom ywide greenhouse gas market, traders said.
In advance trading yesterday and Wednesday, about 450,000 credits representing 2013 allowances to be delivered in December of this year changed hands, compared to about 3.9 million allowances traded during the entire month of December 2012, according to Intercontinental Exchange. Prices are hovering around $15.50 to $16 per ton, up from around $12 to $13 one month ago.
The prices in forward trading also are significantly higher than those fetched in November's inaugural state-run auction. The 23.1 million tons of 2013-vintage allowances put up for sale by the California Air Resources Board settled at $10.09 per ton. The next batch, up for sale in February, will start at $10.71, to reflect the rate of inflation and an automatic annual price increase.
Brokers said that businesses facing a requirement to turn in allowances starting next year are getting into the market.
"Volumes and liquidity are definitely picking up; there's been a fair amount of buying for compliance," said John Battaglia, vice president of carbon emissions at Evolution Markets.
He said threats of a lawsuit were not keeping buyers on the sidelines. "People feel pretty confident that the program is here to stay," Battaglia said. "Environmental programs are always going to have that risk [of a lawsuit] ... it's certainly present in most environmental markets."
Environmental observers agreed. "Buyers are picking up these assets because they know the market is real and they know this is a program that's going to last," said Derek Walker, the Environmental Defense Fund's associate vice president for U.S. climate.
"It's clear from the chamber lawsuit filed the night before the first auction that the litigation at this point is as much about trying to create uncertainty as it is trying to raise legitimate legal issues," Walker added, referring to a suit filed by the California Chamber of Commerce in Sacramento Superior Court on the eve of the November auction ( ClimateWire, Nov. 14, 2012).
A problem in the state-run auction also does not appear to have dampened demand. A Bloomberg story last month disclosing that utility Southern California Edison accidentally bought 1.61 million more allowances than it intended to hasn't appeared to hurt the market, Walker said.
"There seems to be a strong amount of activity since the first auction, and things seem to be moving along effectively," he said.
But the value of California carbon could become more apparent after the second auction in February, one observer said.
"Just because of the quantities and scale of the hiccup ... it's possible it kind of skewed the results to make it more difficult to use that [November] sale as an indicator," said Chryss Meier, an air quality scientist with FirstCarbon Solutions, an energy consulting firm.
Want to read more stories like this?
Click here to start a free trial to E&E -- the best way to track policy and markets.
ClimateWire is written and produced by the staff of E&E Publishing, LLC. It is designed to provide comprehensive, daily coverage of all aspects of climate change issues. From international agreements on carbon emissions to alternative energy technologies to state and federal GHG programs, ClimateWire plugs readers into the information they need to stay abreast of this sprawling, complex issue.
Subscribe to our blog Latest post: How Hotels Can Become More Sustainable Through Data
Download the latest whitepaper Effectiveness of Local Agency Sustainability Plans
Subscribe to Greenwatch Newsletter Check out the latest issues
Read Our Latest Case Study Assisting City of Dublin with CEQA Review for Major Kaiser Permanente Medical Facility