California and Quebec released results today for the November 2017 auction which showed steady prices well above the floor for the second auction in a row. The November auction was also the second in a row to sell out of allowances.

en español  |  This morning California, Québec, and Ontario signed a linking agreement that officially welcomes Ontario into the Western Climate Initiative (WCI) cap-and-trade market. The announcement came after an inspiring Climate Week in New York where states, businesses, and individuals showed that despite Washington D.C going backwards, the U.S. will continue to make progress on […]

Strong results from the California-Quebec August auction released today reflect that the future of cap and trade is secure in California.

California politicians are deep into negotiations over how to extend the backbone of the state’s climate policies, the cap-and-trade program. The Governor’s office and legislative leadership are nearing a compromise that can lock in the 2/3 vote that would provide the strongest legal foundation for a future cap-and-trade program and accelerate the state’s progress to […]

Auction results from the May California-Quebec carbon auction showed increased demand after a California Court of Appeal upheld the legality of California’s auction design last month. These auction results should send a clear message to legislators that California has a strong carbon market design that can weather legal challenges and the inevitable bumps of the […]

Today Senator Bob Wieckowski, supported by Senate President Pro Tem Kevin de Leon, proposed what amounts to a complete overhaul of California’s cap-and-trade program after 2020 in amendments to SB 775. Pro Tem de Leon in particular has been a tireless champion of effective climate policies that are benefiting California’s communities and making the state […]

This post originally appeared on ipolitics.ca. On Apr. 3, the Ontario government will announce the results of its first ever auction of pollution permits under its new cap-and-trade program aimed at cutting the emissions that contribute to global warming. As historic and newsworthy as the event may be, it would be wrong to read too […]

Carbon auction results released today say more about the many milestones that are ahead for the cap-and-trade program rather than anything about the cap-and-trade program’s core function of reducing overall emissions.

Co-authored by Erica Morehouse and Jonathan Camuzeaux. While we hope President-elect Trump will listen to the almost unanimous global voice of governments and business leaders who all understand that we must act to avert catastrophic climate change, it’s indisputable that leadership from U.S. states will be of paramount importance. Amidst this chaos and uncertainty California […]

California made history a decade ago this month by being first in the nation to pass legislation (AB 32) putting an absolute limit on carbon pollution through 2020. The California Legislature made history again last week by extending and strengthening those limits to 2030 (SB 32 and AB 197). SB 32 requires California to reduce […]

The results released today from California and Quebec’s latest cap-and-trade auction show a slight rebound in demand from results seen in May, but still demonstrate the need for a continued commitment on ambitious climate action beyond 2020. The results were released minutes after members of the California Assembly voted on ambitious 2030 targets; the final […]

By Erica Morehouse

Setting a 2030 greenhouse gas target for California could benefit the state’s economy; environment; and future of California’s global climate leadership. Image credit: Flickr/ Jeff Turner

It’s summer recess for the California Legislature which means we have some time to reflect before the race to the end of the legislative session on August 31. A big question is whether the Legislature will pass a climate bill package that would cement ambitious 2030 carbon reduction targets into statute. With the climate spotlight shining brightly on Sacramento – as usual – it’s worth considering why legislative action and leadership is so critical now.

Here are six ways setting a 2030 greenhouse gas target for California could benefit the state’s economy; environment; and future of California’s global climate leadership, especially the groundbreaking cap-and-trade market we forged three years ago with Quebec.

1. Cap-and-trade allowance values will more accurately reflect the long-term cost of hitting emissions reductions targets – This is the classic impact that we consider. A 2030 target means that a carbon allowance sold in 2017, for example, will be a valuable asset not just through 2020 but through 2030 as well. This could translate into higher allowance prices, but if it doesn’t, there could be good news reasons for that too, such as the market anticipating a low cost of reducing emissions.

1. Regulated polluters will value emission reduction opportunities more highly, potentially leading to lower direct emissions – This relates back to the first point. Imagine that a business needs to buy a new boiler that they expect to last 20 years. They have the option to pay more now for a more efficient boiler or pay less now for a less efficient boiler. They are more likely to invest in the more efficient boiler if they know there will be a price on carbon catalyzing ambitious reductions for at least 15 more years rather than just five more years.

1. Allowance banking could increase, creating more incentives for faster emission reductions – This creates an important, but more subtle, environmental benefit. If carbon prices are expected to increase in the future as the cap gets tighter, regulated and non-regulated participants alike will have an incentive to “bank” allowances for future use. (Note that an important California design feature allows a “current vintage allowance”, say 2016, to be used for emissions that occur in 2016 or in any future year.) This banking is equivalent to a reduction that occurs earlier than expected and provides a net benefit to the atmosphere. The concept of banking promotes innovative solutions that cut pollution more quickly, and makes the overall program more flexible for California companies.

1. Demand for allowances could increase – If banking increases, the uptick in demand for allowances may mean that all or most allowances offered at the quarterly auctions sell out, even if emissions remain below the cap through 2020. Out-performing the 2020 cap would be a great outcome, meaning that the long-term price signal is likely incentivizing emissions reductions (as in the boiler example above) or that complementary measures (like the Renewable Portfolio Standard) are succeeding.

1. Offsets developers will have a stronger incentive to reduce emissions where possible and bring projects to market – Offsets provide an opportunity for all sectors of the economy, like the agricultural sector, to be rewarded for high-quality, innovative emissions reductions. Because robust actions that cut pollution take time and investment, a longer-term commitment by the state is essential. This means that, for example, a rice farmer would be much more likely to transform their growing practices to cut methane emissions if those actions reaped a payoff for 15 instead of just five years.

1. Communities, the California work force, and the economy will continue to benefit from Greenhouse Gas Reduction Fund (GRRF) investments – The cap-and-trade program is first and foremost about reducing emissions not raising revenue. While the program’s purpose isn’t to maximize revenue, auctioning is an integral part of California’s well-functioning system and the undeniable benefits of the investments through the GGRF, especially for disadvantaged communities, are an important aspect of program success now and beyond 2020. California’s investments so far have furthered and enhanced the purposes of AB 32 which emphasize reducing carbon pollution in a way that maximizes benefits to the economy and environment, promotes social equity, and transforms the state into a low carbon economy. By sticking to these principles, California is creating benefits that far outweigh the initial investments. And these benefits need to continue!

A process not an event

Setting a 2030 target has been a gradual process in California. And the market may already be operating with some expectation that the cap-and-trade program will continue beyond 2030.

The market has received increasingly specific indications since 2014 that ambitious reductions will continue beyond 2020. For example, before AB 32 was ever passed, Governor Schwarzenegger signed an executive order calling for 1990 levels of emissions by 2020 and an 80% reduction below 1990 levels by 2050. In 2014, the Office of Planning and Research and the Air Resources Board (ARB) started calling for an ambitious mid-term 2030 target, foreshadowing Governor Brown’s 2015 executive order setting that target at 40% below 1990 levels by 2030. Since then, ARB has reopened the Scoping Plan process to meet that 2030 target and begun the regulatory process to amend the cap-and-trade program to extend it to 2030.

With a decade of world-leading, successful climate action behind it, California is on the verge of another momentous step forward. The market will gain even more certainty, and California communities and the economy will score a huge win if the Legislature does the right thing and passes a climate package this year that places a 2030 target in statute.

By Erica Morehouse

May 2016 auction results show an ongoing lawsuit challenging California's cap-and-trade program’s allowance auctions is likely impacting market dynamics, but the market is proving resilient. Image Source: Wikipedia

The results of California and Quebec’s latest carbon auction show that an ongoing lawsuit challenging the cap-and-trade program’s allowance auctions is likely impacting market dynamics, but that California’s market is proving resilient, in part due to the strength of its design.

The May 18 auction, the second of 2016, offered 67,675,951 current vintage allowances (available for 2016 compliance) and sold only 7,260,000. Just under one million of the just over ten million future vintage allowances (available for use in 2019 and after) were sold. The unsold California state allowances will go back to the auction holding account and will not be available for sale until the auction clears above the floor price for two consecutive auctions, a critical regulatory feature that removes unexpected, excess supply from the market and provides further price support. Utility allowances that were consigned to auction and did not sell will be offered again for sale at the next auction.

Increased attention to the litigation brought by the California Chamber of Commerce and the Morning Star Packing Co. et al., as well as higher participation in the secondary market, caused lower demand for allowances in the May auction. Secondary market prices have traded as low as 44 cents below the floor price in the last couple of months. But the real story is the positive and stabilizing impact of the floor price itself.

Other markets without such a strong floor price have seen price drops that are much more dramatic when the market receives a disturbance. But in California, the volume of trades on the secondary market has been higher than usual, showing that some entities are taking the opportunity to buy allowances at a discount.

It's worth noting that these results in no way impact the overall performance of California's program, which will continue to incentivize carbon pollution reductions.

EDF’s take on the litigation of the cap-and-trade auction program’s legality

At this critical juncture, opponents continue to litigate and challenge carbon auctions, an integral component of the cap-and-trade program that promotes equity and a healthy carbon market.

We are confident, however, that California courts will ultimately confirm the Legislature’s broad grant of authority to the California Air Resources Board (ARB) to design effective programs to address the imminent threat of climate change, and will reject the claim that auctioning valuable, marketable emission allowance constitutes an unconstitutional “tax.”

In supplemental briefings submitted May 23 to the California court, ARB argued persuasively that, even if the intermediate appellate court were to find a legal flaw in the auction, there would be no valid legal justification for disrupting the cap-and-trade program including its auction components while the state Supreme Court considers the case or ARB develops a suitable solution. This outcome is well-grounded in legal precedent affirming courts’ obligation to avoid remedies that imperil public health and welfare or cause needless disruption to public and private interests that rely on the current status quo.

California’s ability to continue utilizing a cap-and-trade program designed to meet its needs through 2020 and beyond is essential to California and to global climate momentum.

While EDF has a high degree of confidence that the lower court decision rejecting the challengers’ claims will be upheld, even if it is not, settled judicial procedures should help to ensure that the environmentally and economically important cap-and-trade program continues with minimal disruption.

California’s ability to continue utilizing a cap-and-trade program that is designed to best meet the state’s needs through 2020 and beyond is essential not just to California itself, but also to global climate momentum.

We’re at a watershed moment for climate action, and California is at the forefront. The U.S., China, and 173 other countries signed the Paris Agreement last month, and a group of leaders convened by the World Bank and the International Monetary Fund expressed a goal of moving from 12% to 50% of global carbon emissions covered by carbon pricing by 2030. All the while, California is providing one of the most successful examples of economy-wide carbon pricing that is reducing emissions and promoting equity while the state’s economy is thriving.

There is every reason for confidence both in the legality of CARB’s choice to auction allowances and in the commitment of California’s leaders to deliver on California’s climate goals. We expect that a resilient cap-and-trade program will remain at the heart of the state’s increasingly ambitious and effective climate strategy long into the future.

By Erica Morehouse

Recent study by American Lung Association finds that 80% of Californians are still at risk from unhealthy air. Opponents to clean air claim the "right" to pollute in ongoing litigation. Image Source: iStockphoto.com

It’s pretty clear we have to limit pollution. This week the American Lung Association released their “State of the Air Report” finding that 80% of Californians are still at risk from unhealthy air, despite decades of effort and significant progress. Climate-destabilizing air pollution is harming our state in countless ways, from the Sierra to the Central Valley to the coastline. Given the high cost of pollution, who should pay and take responsibility when it occurs? Should the responsibility primarily be with polluting companies, or should the costs be borne by society at large?

California has been regulating conventional air pollutants for decades, but has only recently started regulating climate pollutants that not only warm our planet but also worsen and are otherwise directly linked to sources of local air pollution.

Many businesses in California are good corporate citizens on this issue. They accept that pollution imposes a cost on society. They even appreciate the flexible, cost-effective approach California regulators have adopted of capping carbon pollution and allowing regulated businesses to trade “allowances,” so pollution can be reduced in the least expensive way possible.

This support is most often demonstrated quietly, through actions like consistently meeting obligations under the cap-and-trade program, engaging constructively at workshops to strengthen the program, and most importantly by not obstructing progress in the courts and the halls of government.

Groups seeking free allowances or to avoid regulation altogether have spent millions on campaigns and lobbying.

But others, like those represented by the California Chamber of Commerce and the Pacific Legal Foundation, are delaying efforts to clean up our air — seemingly arguing that they have a right to pollute for free. They are challenging California’s practice of auctioning some carbon allowances and using the revenue to further reduce carbon pollution.

This litigation has been dragging on for years, ever since the CalChamber filed its suit on the eve of the first cap-and-trade auction in 2012. The Pacific Legal Foundation didn’t file until the next spring. Both lawsuits were filed too late to stop the auctions from taking place, but were just in time to insert doubt and opponent’s views about their right to pollute for free into California’s historic effort to regulate carbon pollution. Back in 2013, a trial court rejected claims that auctions were illegal. But these challengers were not dissuaded, they appealed and the case is still pending.

Failing so far in court, those seeking to pollute for free are attempting to take their case to the court of public opinion after the appellate court asked for supplemental briefing in the case. The appellate court has asked both parties to answer several questions. While the court is giving careful attention to this important issue, opponents are cynically using op-eds and other media stories to plead their case for why polluting should be free.

Groups seeking free allowances or to avoid regulation altogether have spent millions on campaigns and lobbying. The California Legislature is likely the ultimate audience for this effort. Bills to provide free allowances or exempt some polluters have been proposed before but have never gotten any traction.

California has been successfully regulating harmful climate pollutants for over three years now. And holding polluters accountable for some of the cost that society bears is an integral part of the state’s strategy. Hopefully legislators will continue to see this current round of rhetoric for the self-serving ploy that it is.

By Erica Morehouse

The results of California and Quebec’s carbon market auction released today show that the market can operate as designed and continue sailing along.

Participants in the Feb. 17th auction, California and Quebec’s 6th joint auction, had an opportunity to bid on over 81 million carbon allowances. Of those:

• 71.5 million of those allowances were current vintage allowances (2016 and earlier), which regulated businesses can use this year or in any future year for compliance. 95% of current vintage allowances sold at the minimum floor price of $12.73. In the November 2015 auction, prices anticipated the 2016 floor price and sold at $12.73 although the floor price was about 60 cents less.
• Just over 10 million of those allowances are only available for use in 2019 and after. 93% of the 2019 vintage allowances sold at the floor price of $12.73.

These results show steady prices and average participation by regulated businesses. It is somewhat unusual that some current allowances did not sell at this auction. However, these auction results demonstrate an important feature of the California-Quebec market that safeguards against large price swings like those seen in other commodity markets: a minimum price floor in every auction that increases steadily each year. Therefore, although not all allowances sold, the price for allowances sold at this auction was exactly the same as that paid for allowances in November 2015, no price dip. The unsold allowances will be recycled back into the state auction account and will be offered for sale next time prices rise above the floor price. In other words, the carbon market’s design is working.

There is every reason to believe that California’s market will continue to see mostly smooth sailing ahead.

In the early days of the California market steady prices and solid demand for allowances indicated that businesses were ready to comply with their new obligations. Those early indications proved accurate when close to 100% of businesses met their allowance surrender obligations in 2014 and 2015 for the first compliance period.

Now with the carbon market maturing, steady prices and solid demand are important indicators about the long-term outlook for the carbon market. California’s cap-and-trade program only has a carbon budget set through 2020, although the Air Resources Board has indicated they plan to extend that this year. The demand for allowances and prices we’ve seen today is not remarkably low, but we could see an uptick – when ARB extends the cap-and-trade regulation beyond 2020 and the market gains certainty about future reductions.

As California’s auctions settle into a mature pattern, EDF will be watching how the market continues to react to California’s efforts to reduce emissions post-2020 and to how auction proceed investments are benefiting Californians.

By Erica Morehouse

Photo Source: Flickr / JoeBehr

The joint carbon market in California and Quebec holds its first carbon market allowance auction of 2016 today.

The auction offers a good opportunity to reflect on some of the notable successes of the market in 2015.

The California-Quebec market is one of the prime examples of a successful carbon market that many countries will look to as they consider how to meet the commitments made in Paris, where countries successfully negotiated an ambitious climate deal that outlines multiple pathways for nations to use markets to meet their long-term goals.

Here are the top six successes of California and Quebec’s carbon market in 2015, in no particular order.

1. After implementing the most aggressive climate program in the nation, California was rewarded with a thriving economy and significant declines in emissions regulated by the cap-and-trade program.

California saw GDP and jobs grow faster than the national average in 2015. This growth set California up as the eighth largest economy in the world, slightly smaller than Brazil. Meanwhile, as EDF reported in November, California is ahead of schedule to meet its 2020 goal, with emissions covered by cap-and-trade nine percent below required levels in 2014. Capped emissions saw a three percent decline in the 2013-2014 period although overall emissions increased slightly from 2013 to 2014. These figures suggest that California is positioned to continue demonstrating that economic growth and emissions reductions can coexist.

2. 2015 saw California’s cap-and-trade program more than double in size as transportation fuels and natural gas are now regulated under the cap.

The transportation sector contributes 38% of California’s emissions and the decision to regulate it is a pioneering move that other major trading programs like those in New England and Europe haven’t taken yet. Some oil interests had warned for years that regulating fossil fuels would be disastrous for the economy, but California saw healthy job growth that was more than double the rate in oil-friendly Texas.

3. North America, like the rest of the world, is getting serious about addressing climate change and California’s market-based system is looking like a go-to tool for action.

The link between California and Quebec’s carbon markets is now two years old and is a success by all accounts. Ontario and Manitoba have begun designing similar cap-and-trade programs with the intent to join California and Quebec by 2018. Mexico is also seriously working towards a carbon market and has an active memorandum of understanding with California to collaborate on best practices.

4. The carbon market remained strong and steady and businesses showed they were ready and able to comply with the program.

Over the life of California’s cap-and-trade program we have looked to the quarterly auctions to provide indicators on the health of California and Quebec’s overall carbon market. Strong demand for allowances and steady prices are indicators of good health, and that’s just what California and Quebec saw in 2015. Almost all businesses regulated in California and Quebec met their requirement to surrender sufficient allowances to cover their 2013 and 2014 emissions last November. The program is built on a platform of transparency and strong enforcement, and the two entities that did not meet their obligation face a steep penalty: surrendering four allowances for every allowance they failed to surrender in November.

5. California auction proceeds are now making a difference in the lives of real Californians.

In 2013-2015 cap-and-trade auctions raised just over $3.5 billion for state-run programs that further reduce carbon pollution and close to $900 million of that money is earmarked for disadvantaged communities. 2015 was the first year we saw climate investments actually enter communities through programs that provide a range of benefits—especially to low-income households—such as free solar panels or an opportunity to swap out a dirty car for an electric one. Also, approximately $2 billion in utility auction revenue has been returned to households through a progressive, on-bill climate dividend that preserves an incentive for lower energy use.

6. California played a high-profile role at the Paris climate negotiations as a proven implementer of successful climate policies, as an ambitious climate leader, and as an aggregator of subnational commitments.

In 2015, the Brown administration set a strong foundation for continuing successful programs like cap and trade by issuing an executive order that committed to reducing greenhouse gas emissions to 40% below 1990 levels by 2030. Governor Brown then parleyed California’s own ambitious commitment into an “Under2MOU” signed by well over 100 states, provinces, and cities, representing over ¼ of the globe’s GDP. Signatories committed to reducing emissions 80-95% or to less than 2 metric tons per capita by 2050, setting mid-term targets, and collaborating on a range of climate-related policies. California and other founding partners showcased their commitment at the Paris climate talks where subnationals received important recognition for being able to push the envelope on climate issues.

Tune in next Wednesday, February 24, as we report on the results from today’s auction and explore further how cap-and-trade proceeds have been invested to date.

This post originally appeared in California Dream 2.0

By Erica Morehouse

It’s summer time and many Americans are perfecting their grilling techniques and outdoor recipes. This week, EPA’s final Clean Power Plan rule is giving states a cupboard-full of ingredients to create signature recipes for climate action. The rule signals what the finished product must look like – the nation’s first limit on power plant pollution – but states can pick and choose elements that deliver the right combination of energy bill savings for customers, cleaner air, and clean energy investments. Fortunately, California and nine New England states (known as the Regional Greenhouse Gas Initiative or RGGI) have cooked up successful solutions in the past decade, implementing effective cap-and-trade programs that limit total pollution and demonstrate how strong climate action can stimulate economic growth.

California and RGGI have added a secret ingredient to their climate recipes, a catalyst that can not only drive further pollution reductions but can strengthen communities, create jobs, boost local economies, and improve health. Both programs are reinvesting dollars from the sale of carbon allowances (the currency of cap-and-trade that polluters must hold for every ton of pollution they emit) into further efforts to reduce climate pollution.

In RGGI, where cap-and-trade covers the electricity sector, states primarily reinvest auction dollars for energy efficiency projects and renewable energy. As the Acadia Center explained in a report released last week:

Energy efficiency projects reduce consumers’ bills and reduce demand for power.  Lower power demand means fewer emissions from power plants, and less money leaving the region to pay for imported fossil fuels.  Consumers’ energy bill savings are spent in part within the local economy… Independent macroeconomic analysis found that programs supported with revenue raised over RGGI’s first six years of operation would generate over $1.73 Billion in energy bill savings.  These savings create over $2.73 Billion in net economic gains and 28,500 job years of employment.

California’s cap-and-trade program has been in place for two and a half years and over $3 billion in climate investments have been budgeted so far, with the first $500 million starting to find its way into communities. Like RGGI, California will reinvest proceeds to further reduce climate pollution. However, with a cap covering electricity, industry, transportation fuels, and natural gas, California’s investment scope is larger. California’s first priority is to ensure low-income, pollution-burdened communities that are hit first and worst by climate change are first in line to receive benefits. At least 25 percent of all auction proceeds will go to these communities and the state is preparing to exceed this minimum every year. In the first phase of cap-and-trade investments, California focused on bolstering existing programs that will help the state meet its goal of reducing emissions to 1990 levels by 2020 along with promoting other economic, environmental, and health benefits. This included projects like providing free solar panels to low-income residents, delivering rebates for zero emissions cars, trucks and busses, planting urban forests, supporting sustainable, affordable communities, and conserving water and wetlands.

This week California is launching a planning process for the second phase of cap-and-trade investments which will build on and expand current successes. Governor Jerry Brown recently issued an executive order pledging the state reduce emissions 40 percent below 1990 levels by 2030, and the Air Resources Board (ARB) is currently soliciting feedback and holding workshops on what transformative investments would move us toward this bold 2030 goal. Among the new ideas are integrated projects – especially in disadvantaged communities – where investments in clean energy, clean transportation, and walkable communities would compound and complement one another. Another proposal involves innovative financing tools such as loan guarantees or revolving funds (not just traditional grants) that could be self-perpetuating and could also leverage private investments for critical climate projects.

These actions don’t just cut pollution, they deliver on other societal values and public policy goals including strengthening the economy, creating jobs, and improving health. Each of the nine RGGI states and California have customized their investments based on their own state needs, showing how auction proceeds can be a secret ingredient in a well-prepared and easily digestible climate action recipe.

By Erica Morehouse

Hollywood produces some duds, especially right after the end of Oscar season. But virtually all of the environmental scriptwriting that happens in the Golden State has four-star appeal. Californians are trailblazers in protecting the environment and our planet from harm. The state debuted the first-ever vehicle efficiency standards in the 1960s and building efficiency standards in the 1970s and government leaders haven't slowed down since.

Today Californians find themselves ahead of schedule on meeting ambitious 2020 climate pollution goals. The state’s top leaders, from the Governor to the Legislature, are discussing ways to solidify targets, for 2030 and beyond, that would dramatically cut pollution and create a powerful script about public health and prosperity that other states could emulate.

As is fitting for deliberations involving our state’s future, these discussions are built on what could be thought of as “the dirty work” – careful research and planning, and sound analysis. California government leaders have released research they commissioned that analyzes the potential pathways for getting to a lower-carbon future. The research shows that we have the technical know-how to achieve ambitious targets for pollution reduction by 2030 while ensuring robust economic growth.

Clean Technology Transition is Achievable and Affordable

The state-commissioned research was conducted by the economic consulting firm E3 using their model depicting the major sectors (buildings, industry, transportation, and electricity)that contribute to climate pollution in California, with a focus on what happens as infrastructure ages and is replaced. The model tabulates the potential savings and costs from transitioning to clean energy technologies, but does not factor in other substantial benefits of the clean energy economy, including job growth and improved health outcomes.

One of the largest areas of savings that emerges from the research is that replacing old energy technology and upgrading buildings to new, cleaner options could potentially save California $4 billion by 2030. The model also shows Californians getting significant savings in how much they pay for petroleum as they use less of it. Residents will also see savings as buildings become more efficient. Electricity costs are projected to go up slightly as we invest in renewable generation and as a larger part of energy needs are met with electricity (i.e. for electric cars or home heating). For example, the model shows the possibility that households could see a small net cost increase (around $8 per month) by 2030 with clean energy upgrades.

Even more Economic and Health Benefits Likely

Our review of the research concludes that benefits to jobs, the economy, and health outcomes from environmental policies can often dwarf the primary intended targets for these policies, i.e., pollution reduction. EDF has shown that two of California's major transportation policies can lead to over $23 billion in health, climate change, and energy security benefits by 2025. Dr. David Roland Holst of Berkeley has shown that $16 of economic benefit is created for every dollar that is saved on gasoline. New England's RGGI cap-and-trade program for electricity invested over $900 million in cap-and-trade proceeds mostly in energy efficiency measures to create net benefits of $1.6 billion for the economy, over $700 million of which are “indirect benefits” not captured by the E3 model.

California’s elected leaders seem to grasp that we’ve reached a critical moment to lock-in long-term benefits and to positively influence action outside California. It’s too early to tell exactly where California’s post-2020 script will take us, but the E3 research gives us a hopeful glimpse into the clean energy future.

By Erica Morehouse

On Tuesday, the Canadian province of Quebec held its second cap-and-trade allowance auction.

Today, the results are in – and they’re encouraging.

99% of the current vintage year allowances and 84% of the future vintage year allowances offered for sale in this auction were purchased at the floor price of $11.39 CAD.  This is a significant increase from Quebec’s first action, which saw the sale of only 34% and 27% of current and future allowances, respectively.

These results reflect growing interest and demand in this burgeoning carbon market after it officially linked with California’s program at the beginning of 2014.

However, the results of Quebec’s auction are a bit different from the results we saw in California's sixth auction last month. Most notably, California’s auction saw higher demand for allowances, driving the settlement prices for both current and future allowances above those seen in Quebec’s auction.

So, why do these differences exist?  And what do the Quebec auctions actually tell us? 

The answers to these questions center on how much smaller Quebec's economy is than California's, about a sixth of the size. This is in large part due to the sheer magnitude of California’s population – nearly 38 million compared to Quebec’s 8 million. Because the Golden State is a much larger market than Quebec, we can expect the California market to be a much stronger driver of prices and have heavier trading activity.

California and Quebec are planning to hold joint auctions this year, and at that time the two markets will completely align with a uniform price for both sets of allowances. Until then, given that Quebec’s program is much smaller and has had less time to develop, the California auction prices and market conditions are more predictive of what the linked program will look like once joint auctions begin.

There are a few reasons for the lower prices and demand we are seeing in Quebec. First, entities can only participate in Quebec's market if they are located in Canada. This means a company regulated by California’s cap-and-trade program, with no presence in Canada, will have to wait until joint auctions to buy Quebec allowances directly at public auction. Because Quebec’s economy is so much smaller, this drastically limits the pool of participants. There were just 16 participants in the Quebec auction compared to 71 participants in the last California auction.

Second, unlike California entities that must turn in allowances to cover a portion of their compliance obligations at the end of this year, covered entities in Quebec do not have to turn in their first batch of allowances until 2015. (This is one of the few small differences between California and Quebec regulations.) These entities aren't feeling the same sense of urgency to acquire allowances as California entities. Furthermore, Quebec’s program, just as California’s, was designed to allow companies time to smoothly transition to a capped economy. As Quebec’s program is still at an early stage, prices were expected to be slightly lower.

In fact, the results of this last Quebec auction show exactly why linkage is so useful.

Linkage can allow a smaller market like Quebec’s with less trading to link with a larger, more active one like California’s. This will in turn increase the trade activity of both markets, which translates into less price volatility and a healthier joint market. In addition, linkage can create cost savings by broadening opportunities for lower cost reductions and giving businesses greater investment flexibility.

The linkage of Quebec and California will be a model for other jurisdictional linkages, showing that greater emissions reductions can be achieved together than either market could achieve alone. As the saying goes, two heads are better than one. California has a strong partner in Quebec and we can expect to see that partnership reach its full potential when joint auctions begin later this year.

By Erica Morehouse

Californians will see a “virtuous cycle” of low-carbon investments begin as cap-and-trade auction proceeds finally head out the door starting this summer.  This is the news from the Brown administration this week detailing how they propose to start investing dollars from 2014 carbon auctions while beginning to repay the $500 million borrowed last year.

We are especially excited to see that California's most disadvantaged communities — the ones that have suffered environmental burdens for years and will be hit hardest by climate change in the future — will see more than the mandated 25% of auction proceeds invested for their benefit.  Consistent with an investment plan released last year, there will be three major categories: sustainable communities and low-carbon transportation, energy efficiency and clean energy, and natural resources and waste diversion.   Clean transportation and sustainable communities will receive the largest chunk ($350 million) of the proposed $850 million investment.  This means we will see investments in solutions such as clean trucks and buses, electric vehicle rebates, zero-emission freight demonstration projects, and enhanced connectivity and modernization for public transit in disadvantaged communities.

Investments like these will create big wins for California’s most at-risk communities.

Consider this: Diesel trucks and buses are the single-largest source of toxic diesel pollution in the state, causing cancer, heart attacks, breathing emergencies, lost days at work, and even premature death.  Similarly, alternative personal vehicles like those with electric batteries can provide benefits to communities.  A recent study by ICF and an earlier study from UC Berkeley both showed significant benefits from investments in clean transportation and other low-carbon investments which include job creation, increased gross state product, and increases in personal incomes, not to mention indirect health care savings.

Why do we call this a “virtuous cycle” of investment?

The economic benefits are not simply the direct benefits you may think of first, such as job growth in areas like manufacturing and selling clean trucks, buses, and vehicles.  Research also shows that when you save $1 on energy costs — which would more than likely go to an international oil conglomerate — the benefit to the economy is $16.

How does this work?  Instead of sending those dollars overseas, you're most likely spending them in your community, on local products and services.

Today, Governor Brown committed to the first of many critical cap-and-trade investments in disadvantaged communities and cleaner options for Californians. With this new virtuous cycle of investment, we expect these and subsequent investments to pay dividends to the health of our citizens, our environment, and our economy for years to come.