California Delays First Cap & Trade Permit Auction

State will start with a dry run while questions remain about how to spend the money

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Starting next year, industries will have to track their greenhouse gas emissions and some will have to pay for carbon pollution rights.

Mary Nichols, chairwoman of the California Air Resources Board (ARB) announced at a state senate hearing that the first carbon permit auction will be pushed back to November 14th.

The surprise announcement came at a hearing called to discuss what to do with proceeds from the sale of permits to emit greenhouse gases, the first of which is expected to flow into state coffers late this year.

Nichols’ announcement stole the headlines, though she said that the new auction date will not affect the overall timeline for implementation and that August will now be a “practice auction.”

“We’ll give everybody a free round in August where the auction won’t really count,” Nichol told me. “So that gives all the stakeholders, including of course, all the companies that are going to have to be purchasing allowances at the beginning an opportunity to see how the system will actually work.”

The rest of the hearing returned to the business of how the expected revenue from trading carbon “allowances” — which could exceed $1 billion in the first year — may be spent. It’s likely that the money will be considered a regulatory fee, which means that legally it can only be spent on programs that further the goals of AB 32 — namely greenhouse gas reduction.

“That makes sense, right, you don’t want the state collecting regulatory fees and then turning around and using them for unrelated revenue purposes,” explained Cara Horowitz, a law professor at UCLA who gave testimony at the hearing. The good news is that the state already runs several programs that fit these requirements, and the money could fund new programs as well.

I asked Nichols what she found most helpful from the hearing moving forward. She cited testimony given by Paul Hibbard, vice president of Analysis Group, who reviewed the economic impact on states participating in the Regional Greenhouse Gas Initiative (REGGI) after the first three years. REGGI is often cited as a test case for carbon trading in the U.S., though the Northeastern program applies only to electric power producers. California’s program will ultimately be much broader in scope.

Ten eastern states participate in REGGI and each can use its revenue for whatever policy purposes it likes. “Those who chose to target their use of the revenues towards energy efficiency were the ones who generated the most new jobs and new economic opportunities,” said Nichols. Is that a hint for where California could be headed? Possibly but it won’t be up to Nichols to make that call. Ultimately, it’s up to the legislature to decide during the budgeting process.