The California Air Resources Board (CARB) released the results from the first California CO2 emissions allowance auction held last week. CARB’s initial assessment is that the auction was a success. It went off without any electronic glitches and there was no evidence of tampering or interfering with the market. As a procedural matter, it was a success. For complete results, see The levels of activity and expense were not as robust as CARB had anticipated, however.

The sale price for the 2013 allowances was not as high as CARB expected or as markets predicted. The allowances were all sold at $10.09 each. The minimum actual reserve price was set at $10.00. The “auction” rewards allowances from highest bid to lowest bid, but the price on the lowest bid applies to all of the allowances sold at that auction. Therefore, even though the highest bid was $91.13, all bidders paid $10.09 per allowance. Many people expected the allowances to sell for about $12-$13 each.

All of the 2013 vintage allowances were sold — 23,126,110. CARB received bids for three times that number of allowances. (Since a participant can offer more than one bid, it cannot be said that one in three participants received allowances.)

The auction also included vintage year 2015 allowances. Only about 5.5 million out of the approximately 40 million available, about 15%, sold. The auction price on the 2015 allowances was $10.00.

As a key part of the California’s Global Warming Act, or AB 32, the cap and trade program relies on allowances as permits to emit CO2 and other greenhouse gases. The program sets a limit, a cap on total emissions, which reduces yearly. Emitters must surrender allowances, one allowance per metric ton of CO2 or CO2 equivalent. There should exist a secondary market where emitters can buy extra allowances which others do not need, or purchased in order to sell on the secondary market. Those looking to buy and sell in this market will watch the allowance price closely.

Participation in the auction illustrates that (1) participants are taking seriously the obligation to obtain allowances; but that (2) they may be wary of the future of the program given the court challenges to the cap and trade auction. In essence, participants seem to be dipping their toes in the water, perhaps wading in a little bit, but are not yet ready to take the plunge and buy large quantities covering the future.