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California auction tests second largest carbon market

Last week the California Air Resources Board (CARB) hosted its first quarterly auction for carbon allowances in a cap-and-trade system that will take effect next year. The results are now in, and they suggest that there were no major surprises during the online event — no real shocks to the system. It’s a positive sign for the state as it prepares to launch what will be the world’s second largest carbon market, behind the European trading system.

An analysis of the 14 November auction posted on CARB’s website indicates that the agency sold all 23,126,110 allowances on offer for 2013 — each of which allows the owner to emit one tonne of carbon dioxide. The allowances sod for the near rock-bottom price of US$10.09 — less than originally expected, and just above the minimum price of $10. Analysts at firms such as Thomson Reuters Point Carbon attribute this in part to doubt created by the California Chamber of Commerce’s lawsuit, filed on the eve of the auction, challenging the cap-and-trade system.

But the fact is that all of the allowances sold, which is evidence that California did a reasonable job of estimating baseline emissions: if businesses didn’t think they would need the allowances, they wouldn’t have purchased them. The state also offered an early crack at allowances for 2015, but just 5,576,000 of the 39,450,000 on offer sold, this time for the minimum price of $10.00. Again, analysis suggest that doubt in the market may have led many companies to hold off on 2015 allowances.

All told, the auction raised roughly $289 million, this despite the fact that California handed out around 90% of the allowances for free. The number of allowances handed out freely will decline over time, as will the overall number of allowances available (a nice overview of the system is available from the Center for Climate and Energy Solutions, a think tank based in Arlington, Virginia). And the cap-and-trade programme is part of a much larger effort discussed last year in a Nature feature about CARB chairwoman Mary Nichols.

California ranks as the ninth largest economy in the world, and the auction marks yet another milestone in the effort to combat global warming at the state and municipal levels, despite continued gridlock in Washington. At the same time, scientific analyses uniformly conclude that current efforts to reduce global greenhouse-gas emissions will not be enough to prevent the dangerous climate interference. Indeed, the latest analysis, conducted on behalf of the World Bank and released on 18 November, suggests that the world is on course for warming of 4 degrees Celsius by the end of the century — more than double the formal 2-degree goal — with alarming consequences for oceans, natural ecosystems, agriculture and general human well-being.

Prepared by the Potsdam Institute for Climate Impact Research and Climate Analytics, the report stresses that 4 degrees of warming could push the globe into unpredictable territory, potentially overwhelming human efforts to adapt to the climate. “It is likely that the poor will suffer most and the global community could become more fractured, and unequal than today,” the report states. “The projected 4°C warming simply must not be allowed to occur — the heat must be turned down. Only early, cooperative, international actions can make that happen.”

In short, regardless of how effective they are, climate programmes undertaken by California and other state and local governments are not going to satisfy countries that are looking to the United States for leadership in the United Nations climate talks, the latest round of which kick off in Doha, Qatar, next week.

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