California GHG Auction: Some Anecdotal Evidence of the Cost of Regulatory Uncertainty?

The California Air Resources Board just released the results of its second auction of GHG allowances.  While the auction for vintage 2013 allowances was still healthy, with all allowances sold at $13.62/allowance, the future auction, for vintage 2016 allowances, did not fare so well.  Fewer than half the allowances sold, and the clearing price was CARB’s reserve price of $10.71/allowance.

Why the disparity?  It’s significantly above any reasonable discount rate.  Could it be that uncertainty about the future of the allowance program might depress prices in the out years?  Given the fits and starts with which carbon regulation has proceeded in the United States, it would not be surprising if power plant owners are not fully persuaded that, even in a state as blue as California, this program will remain in place in 2016.

Two separate articles in the past few years have looked at the cost of regulatory uncertainty on coal-fired plants and carbon capture and storage technology.  I look forward to my economist friends’ explanation for the allowance price disparity.

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