California’s cap-and-trade program to cut greenhouse gases resumed this week with its second auction of carbon allowances to industrial polluters. The market is being closely watched around the world, and billions of dollars are at stake. But some nagging questions are lingering from the first auction.
The state’s first-ever carbon auction last November was a very exclusive online event, open only to bidders and regulators at the California Air Resources Board (CARB). Four days later, Mary Nichols, who heads the board, declared it a resounding success, saying the auction came off "without a hitch."
"Hundreds of participants were trained at every stage of the process, including how to register and how to bid," Nichols told reporters in a victory-lap news conference. "And it all worked just as we had hoped it would. "Well, not quite “all.” One of the biggest players in the auction encountered a rather sizable hitch that Nichols never mentioned. More than a than a month later, Bloomberg reported that one of California’s largest utilities, Southern California Edison, had inadvertently bought about 40 percent more permits than it intended. Bloomberg said it obtained internal documents revealing that Edison bidders had used “the wrong format” to submit its bid.
Some market players have expressed concern that the $16 million mistake overstated the real demand for carbon permits and set the price for carbon artificially high ("settlement" price of the first auction was about nine cents higher than the $10 floor price). It was a gaffe that ensured the auction would sell out, and a “hitch” that was never made public by regulators.
"There’s a security aspect to it," CARB spokesman Dave Clegern explained in an interview a few days before the first auction. He said there’s a reason for the tight lid on bidders. About a week after the Bloomberg story appeared, and KQED made its inquiries, the Air Board put out a stern “reminder” of the rules prohibiting bidders from talking about the auctions.
Clegern went on to say that, "We are simply trying to let the market take its course without being flooded with misinterpretation or rumors or anything like that, that might cause spikes that are unrealistic and unnecessary."