California sale of carbon permits falls short

A glut of carbon permits has been blamed for a recent weak auction, in which 660,560 of the 10 million permits were sold at a minimum floor price of $12.73 a tonne. Critics argue the state's cap-and-trade programme has led to the oversupply and is reducing incentive. However, the sector got a boost when the state Assembly voted to extend the cap-and-trade programme beyond 2020, and the legislation will require the state reduces CO2 emissions by 40% below 1990 levels by 2030. The legislation is awaiting the Senate's agreement.
(Carbon permits, in pararaph 7, were sold for $12.73, not $12.37; the error also occurred in Update 1)

By Rory Carroll

SAN FRANCISCO, Aug 23 (Reuters) - California sold just over one-third of the carbon permits it offered to cover emissions this year, receiving the minimum price at an auction last week, regulators of the state's cap-and-trade program said on Tuesday.

Carbon market participants said the weak auction results were an indication that the program is oversupplied with permits while adding that passage of legislation on Tuesday to extend the program beyond 2020 should raise future demand.

California's cap-and-trade program is a key component of a broader effort to reduce the state's output of heat-trapping greenhouse gases to 1990 levels by the end of the decade.

It has come under fire from critics who have said the program suffers from a glut of permits, reducing the incentive for businesses to cut emissions and curtailing revenue from a program that funds key low-carbon initiatives such as the state's high speed rail project.

The California Air Resources Board, which regulates the program, has said unsold allowances are an indication that the reductions are occurring beyond the program's annual targets.

While demand at last week's auction was somewhat stronger than at the previous sale in May, the state for the second consecutive auction failed to sell any of the 2016 permits that raise money for the state's greenhouse gas reduction fund.

It also managed to sell, at the auction floor price of $12.73 a tonne, just 660,560 of the 10 million permits that cover emissions in 2019. That money will go into the state's fund.

The vast majority of the allowances the state sold at the August auction were permits consigned to the state by electric utility companies.

Despite the weak auction results, cap-and-trade supporters got a boost on Tuesday when the state Assembly voted 42 to 29 to extend the program beyond 2020. The legislation, which now goes back to the Senate for concurrence, requires the state to slash emissions 40 percent below 1990 levels by 2030.

"Our climate change efforts are proof California can be progressive and prosperous at the same time," said Assembly Speaker Anthony Rendon said on Twitter after the vote.

"Harmful emissions are going down and the economy is going up. That's a success story - plain and simple," he said.

The cap and trade program has raised $4 billion through its quarterly auctions since the program's launch in 2013.

Last week, Senate President Pro Tempore Kevin de Leon unveiled a plan for $1.2 billion in unspent cap and trade revenue that gives priority to improving air quality in low-income communities in Los Angeles and the Central Valley. (Reporting by Rory Carroll; Editing by Sandra Maler and Steve Orlofsky)

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