California Auctions Carbon Emissions Permits

California has initiated its program to auction permits to mitigate the release of greenhouse gases. Wednesday's three-hour auction was the first phase of California's cap-and-trade program, the result of a 2006 act that then-Governor Arnold Schwarzenegger signed to reduce the state's greenhouse-gas emissions to 1990 levels by 2020.

California hasn't unveiled a plan for how it will spend the proceeds from what will be quarterly auctions. But with the California Air Resources Board saying it expects the auctions to generate $1 billion in the first year—and $2.8 billion to $11 billion a year by 2015—environmentalists and businesses have plenty of spending ideas.

Meanwhile, the California Chamber of Commerce sued the Air Resources Board Tuesday in Sacramento Superior Court, asking the court to block the auction, which the chamber calls an illegal tax. A spokesman for the air board said it is reviewing the suit and is "confident that the cap-and-trade program will withstand any court challenge."

California's program "caps" the amount of heat-trapping gases that can be emitted by about 600 oil refineries, power plants and other industrial facilities. It offers permits to the facilities to emit up to the established cap at little or no cost in the program's first year, reducing the free allowances over later years.  Facilities that can't abide by the caps can buy permits either at auctions or from companies that have unused permits in a secondary market that will later begin trading. California's auction is similar to a European Union program and the northeastern American program called the Regional Greenhouse Gas Initiative (RGGI).

The auction is conducted on a website where companies or individuals who have previously registered can bid for specific quantities of emission permits at a price above the auction "floor" of $10 a ton of carbon dioxide. Each permit is good for one metric ton of CO2. The permits are sold to the highest bidders first, then in order of lower bids, at the lowest accepted bid, according to the Air Resources Board.

Companies bidding Wednesday included Southern California Edison, a unit of Edison International and San Diego Gas & Electric Co., a unit of sempra Energy. The state next week will announce how many permits were bought and sold Wednesday and at what price.  (WSJ, 11/14/2012)