California’s Third Auction Results Show Program’s Good Health

The third auction cleared at $14.00 for V13 allowances, in line with our expectation and with prices on the secondary market over the past months. Demand for current vintage was sustained, with a much narrower bidding price range (the maximum price was $16.67, while in the first auction it was over $90). Regulated entities remain the main buyers, with 90% of the permits purchased by compliance entities.

Demand for future vintage was stronger than in the first two auctions, with 80% of the allowances sold, showing increasing confidence into the design of phase 2 and the long term viability of the program generally. The clearing price for Vintage 16 allowances was the reserve price, $10.71.

81 in total participants joined for the auction, slightly less than at the last auction (91), but with a number of new players who had not bid in previous auctions. Municipal utilities in particular and smaller industrial players like food processors entered the primary market. This shows companies are getting better prepared and more confident in their ability to manage the program’s requirements.

The state raised a total of $117.6 million (V13 and V16 revenues combined), which brings total revenues from the three auctions so far at $256 million, in line with the Governor’s revenue projections for FY 2012-2013 and half way through the projects $500 million revenue for FY2012-2013 and FY2013-2014 currently under discussion in the budget.

Overall, the auction results show increased maturity from program participants and from the market and confirm the good health of the carbon market in California.

More detailed analysis of the auction results to come.