Cap-and-trade auction generates millions, yet possibly insignificant for state budget purposes

By CMTA Staff

Capitol Update, Nov. 29, 2012 Share this on FacebookTweet thisEmail this to a friend

The California Air Resources Board (CARB) held its first cap-and-trade auction this month. Covered industries and electric generators must hold allowances to account for all their greenhouse gas emissions during the years 2013 through 2020. Some allowances will be provided for free up to an efficiency benchmark to industry, while electric generators must purchase all their allowances at auction or through trading in the secondary market. The level of free allowances to industry will decline between now and 2020.

The Department of Finance has estimated that the auction of allowances during the budget year 2012-13 would raise $1 billion, half of which would be available to offset general fund obligations. The balance would be spent on new, yet to be defined, programs to reduce greenhouse gases. However, the nonpartisan Legislative Analyst’s Office (LAO) says the Governor and Legislature will probably only be able to use about $100 million to offset general fund spending because the money comes from a fee and state law requires fee-generated revenue to be spent on programs that relate to the purpose for collection of the fee. The eligible programs identified so far include an energy efficiency initiative at the University of California, water use efficiency programs that cut down the amount of electricity required to move water, and a forest resource program. The LAO’s finding of fewer programs that would qualify for the funds was incorporated into the LAO’s calculation of the state's $1.9 billion deficit through June 2014.

The first auction sold all 2013 vintage allowances at $10.09 per unit, while only 14 percent of the offered 2015 vintage allowances were sold. The total amount raised was $289 million, most of which will be distributed back to utility ratepayers. Only about $55 million is available for general fund use, far lower than anticipated for the first auction, due largely to the low demand for 2015 allowances. It remains to be seen how much demand there will be for allowances during the auctions in February and May 2013. 

CMTA opposes the CARB decision to raise money through the cap-and-trade program. We support the California Chamber of Commerce lawsuit filed this month to stop the auctions. The chamber argues that the state can't legally collect more in fee money than is needed to administer the cap-and-trade program. A court decision is not expected until next year.

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