Auction 5 Results and Analysis

Auction 5 results showed continued interest and participation from natural buyers, which resulted in a higher than expected clearing price for V13 allowances. The results indicate healthy market participation. We expect price on the secondary market will remain in the $11-$12 range through the end of the year, with increased market volumes in December for the close of the year.

Clearing Prices

Vintage 13 allowances sold for $11.48 a ton, 74 cents (6 percent) below the August auction clearing price of $12.22, and almost 20 cents above secondary market prices. The clearing price and the subscription rate (see Figure 1) were a little higher than most market participants and analysts (including us) expected. Vintage 16 allowances sold for $11.10 a ton, the exact same price as the August auction and 15 cents below closing prices on ICE the day before the auction. Both auctions were fully subscribed.
These results indicate not only that participants are stockpiling allowances to prepare for the long haul, but also that a number of large emitters are still buying for their 2013-2014 compliance needs.

Auction Participation Nov 13
Figure 1. Participation at California auctions, 2012-2013
Data source: California Air Resources Board

Who Were the Bidders?

As expected, the number of participants was slightly lower than at previous auctions. Demand from utilities and independent power generator remained strong (see Figure 2.). Auction 5 also saw the first participation from a voluntary buyers looking to purchase allowances to use as voluntary offsets rather than for compliance.
Bidders Nov 13

Figure 1. Bidders at California auctions, 2012-2013
Data source: California Air Resources Board

Auction revenues

The auction brought $137 million in revenues to the State of California. Investor-owned utilities raised $150 million on behalf of ratepayers, and publicly-owned utilities sold $10 million worth of allowances. The use of auction revenues will be determined by the Auction Proceeds Investment Plan, which is being drafted by the Air Resources Board.