Chris Megerian quotes me in a Los Angeles Times story on the most recent carbon market auction results, which featured strong demand for allowances at modest prices. While the auction-clearing prices were the highest yet, they are a long way from where prices likely need to be to deliver on California's 2030 climate target:
However, some analysts are concerned about how the state will meet its ambitious goal for slashing emissions to 40% below 1990 levels by 2030.
Even though the cost of permits has been rising, it may not happen fast enough to provide an adequate financial incentive for companies to clean up their operations, said Danny Cullenward, a Stanford University energy economist.
State regulators should take steps to ensure they’re auctioning the right number of permits because making too many available could allow too many emissions, he said.
"Lurking in the background is a much more serious issue,” he said.
With AB 398's passage on 2/3 vote basis, there is no longer any legal uncertainty over the program's future, so it'e heartening to see auction demand pick up. Nevertheless, AB 398 delegates broad discretion to the market regulator, CARB, to determine the program's stringency going forward. CARB faces enormous pressure to keep the market in an oversupplied condition, but could do the right thing and clear up the oversupply problem with the legal authority the legislature provided.
Without a clear signal that CARB is going to increase program stringency to deal with the oversupply problem, it's no wonder the new auction results were modest. Auction prices cleared a little more than a dollar over the minimum offer price, which is both the highest price in market history and far short of what California needs to get on track for its SB 32 target. This is exactly what one should expect given that AB 398, the market re-authorization bill, only requires CARB to analyze, not eliminate, oversupply. Absent a strong signal from CARB that it will do the right thing and design a program that binds, we should expect low market prices.
So for all the good news, the auction results also indicate that those who want to see this program deliver on the state's ambitious goals have a lot more work to do.