More than a quarter billion dollars spent on carbon credits

Companies spent nearly $100 million an hour to buy carbon pollution credits at California’s first auction under the state’s law to curb greenhouse gas emissions.

Despite the hefty price tag, the final per-credit price was nearly the bare-minimum — $10 each — required by the auction and more than $2 below the per-credit market price projected last week on Wall Street.

The Air Resources Board, which supervised the event, reported today that the three-hour auction fetched $233.3 million from the sale of 23.1 million credits — all that were available — for 2013, plus another $56 million for 2015 from the sale of 5.58 million credits, a fraction of the 39.5 million that were on the block for that year.

In the end, the some $289.3 million worth of credits, or allowances, were sold.

The specific buyers and the amounts they paid were not disclosed, but they were among more than six dozen companies that were qualified to participate in the event, the ARB said. Those included petroleum companies such as Exxon, Shell North American, Phillips 66 and BP Energy, all the state’s investor-owned utilities and several agricultural and irrigation interests. A few of the credits, about 3 percent, were bought by traders for later sale.

“We were very pleased at the results, first of all because it worked,” said ARB Chair Mary Nichols. “The platform operated as it was designed to do”

The final price of the credits, which covers a metric ton of carbon emissions, worked out to $10.09 each. The minimum acceptable price, or reserve price, was $10 apiece. The credits were auctioned off in lots of 1,000 each.

The proceeds for the 2013 credits will be distributed among utilities; the 2015 proceeds go to the Air Pollution Control Fund.

The credits are sort of like permission slips that allow companies to continue current operations as they improve their equipment and methods to cut greenhouse gases.

The state law, AB 32 approved in 2006, requires climate-changing greenhouse gases to be reduced to 1990 levels over the next eight years. In 1990, there were about 427 million metric tons of these gases or their equivalent in the aggregate statewide, according to the Air Resources Board.

Another auction will be held early next year.

The auction, which went forward despite legal challenges, is unique among the states, although a regional system for electricity-only exists in the northeast and a similar setup is in effect in Europe.

Some 360 companies, including power companies and cement plants, that run about 600 industrial sites across the state are targeted by the auctions, according to the Air Resources Board. The companies already have free credits covering 90 percent of their current emissions. The current bids were for credits to cover the remaining 10 percent.

The quarterly auctions by some estimates are projected to raise between $8 billion and $41 billion, with the money going to everything from helping balancing the state budget to promoting the virtues of clean energy to giving breaks to millions of residential and commercial electricity customers.

But even before the auction began, state chamber of commerce went to court to try and stop it. The ground rules for the auction have been in effect since 2011, but the lawsuit was filed the day before the auction got under way last week – an 11 the hour move that surprised observers.

In February, the Legislature’s nonpartisan fiscal adviser estimated that the proceeds from auctioned allowances could reach $14 billion within the next few years, then taper back and level off at about $12 billion annually as the program proceeds. The low end over the same period ranged from less than half-a-billion dollars to about $2 billion.

The governor’s 2012-13 budget assumes $1 billion from the program, with about half going to cover shortages in the General Fund and the remainder for several clean-energy and environmental programs.

Whatever the participation in the auctions, there will be plenty to bid for: Between now and 2020, the regulator will make available up to 2.5 billion allowances, in a mix of free and paid credits. The phase-in of the carbon emission controls is divided into two phases.

The first, beginning in 2013, will include all major industrial sources along with electricity utilities. The second, starting in 2015, brings in distributors of transportation fuels, natural gas and other fuels. Together, the companies, which represent about 85 percent of California’s carbon emissions, produce some 25,000 tons or more annually in carbon emissions.

Under cap-and-trade, companies’ emissions are limited, or capped, but the allowances can be bought, sold or traded to allow the firms’ operations to continue, at least for a while, as emission limits are imposed. The idea is to engage the market place, with its financial incentives and penalties, to cut climate-changing carbon emissions rather than through top-down orders from regulators.