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The cap-and-trade program Ontario’s set to join next year is having big trouble in California and Quebec, and it could mean Ontario’s much-heralded $8.3-billion Climate Change Action Plan has far less money to spend in reality.
For the second time in a row, a joint cap-and-trade auction held by California and Quebec has failed to sell most of the emissions allowances on offer. It leaves the two governments hundreds of millions of dollars short on revenue projections, and nobody can say for certain why the auctions are failing.
Cap-and-trade auctions are held quarterly, and see businesses buying allowances from the government to cover their expected greenhouse gas emissions during a time period. Businesses can also trade allowances in between auctions. In a cap-and-trade system, there is a total cap on emissions and only enough allowances to fit within that cap. The cap comes down over time.
Ontario has budgeted for about $2 billion annually from cap-and-trade auctions, starting next year — a figure that will be impossible to meet if these auction results continue.
California and Quebec have been holding joint auctions since November 2014. The first five sold out completely, while the sixth sold 95 per cent of the allowances on offer. But Joint Auction #7, held in May, was a bust that saw only 11 per cent of allowances sold, and observers were anxiously awaiting results of the August auction to see if the market would rebound.
A summary report of Joint Auction #8 was released Tuesday, and it shows only 35 per cent of the total allowances were sold — an improvement from May, but a far cry from what the governments had budgeted for.
“Thirty-five per cent is definitely showing that there’s a problem,” said Duncan Rotherham, a carbon market expert who has done cap-and-trade modelling for Ontario energy firms. “And this is twice as scary as the first one because it’s a trend.”
In fact, the underlying numbers for California are even worse. Almost all of the allowances purchased in the California auction were special “consignment” allowances given to energy utilities; the state government sold just one per cent of its allowances on offer, which is disastrous for projects — such as California’s high speed rail plan — that are supposed to be funded from auction revenue. California had been raising about $650-800 million (Canadian) per auction, but May’s only raised about $13 million and August’s will be even worse. Quebec raised roughly $200 million per sold-out auction, but only raised $20 million in May’s auction.
The same problem could be about to hit Ontario’s government. The five-year, $8.3-billion climate change action plan is to be funded entirely from cap-and-trade revenue. The plan is seen as crucial to meet Ontario’s emissions-reduction targets, and is supposed to fund electric vehicle incentives, home energy retrofit programs, and many more green initiatives.
A statement from Environment and Climate Change Minister Glen Murray’s office said the province has built its action plan so it can adjust to auction results.
“As it is a market system, fluctuations are expected and the result of one single auction is not an indicator of the strength of the market,” the statement said, despite the fact Postmedia asked about two poor auctions in a row.
“It’s important to note that, on average, 80 per cent of total current allowances offered have been sold at auction,” the statement continued. “The Climate Change Action Plan has specific built-in ranges to adjust to auction results and was designed with that flexibility.”
Ontario’s cap-and-trade program starts up in January 2017, but for the first year the auctions will be isolated within the province. The joint auctions with California and Quebec start in 2018, and the total revenue from those auctions will be split proportionally between the three jurisdictions.
Rotherham said it’s unclear what will happen when Ontario starts its auctions — even when the auctions are Ontario-only. He said the secondary market, where businesses can trade the allowances they’ve purchased in auctions, could start seeing large discounts if nobody’s buying at the regular auctions.
“You could have buyers in Ontario saying, maybe we need to sit out of these Ontario auctions,” he said. “Why would I buy fully priced Ontario allowances when I can wait and buy discounted (California and Quebec) allowances?”
He also pointed out that if California businesses have stopped buying but Ontario’s are ready to gobble up allowances, the split auction revenue results in “a massive transfer of wealth from Ontario to California.”
When trying to diagnose the problem with the auctions, most people point to legal and political uncertainty in California. A lawsuit arguing the program is an unconstitutional tax is working its way through the courts, and the state government is battling political opponents over how to extend the program past 2020.
Dave Sawyer, whose EnviroEconomics firm has done cap-and-trade analysis for the Ontario government and other clients, said it’s not surprising the auctions are struggling, given the uncertainty in California. But he said it could also simply be that cap-and-trade is working and emissions reductions are happening faster than expected, meaning fewer allowances are necessary.
He said observers need to be patient because the system is so complex, and it will take a long time to know whether deeper problems are at play — or if this is just short-term turbulence from California’s political situation.
“I don’t know if this is a trend yet,” he said. “Does it indicate an underlying structural problem? I don’t think one can conclude that. There’s all kinds of reasons you could find to explain it.”
查看原文...
For the second time in a row, a joint cap-and-trade auction held by California and Quebec has failed to sell most of the emissions allowances on offer. It leaves the two governments hundreds of millions of dollars short on revenue projections, and nobody can say for certain why the auctions are failing.
Cap-and-trade auctions are held quarterly, and see businesses buying allowances from the government to cover their expected greenhouse gas emissions during a time period. Businesses can also trade allowances in between auctions. In a cap-and-trade system, there is a total cap on emissions and only enough allowances to fit within that cap. The cap comes down over time.
Ontario has budgeted for about $2 billion annually from cap-and-trade auctions, starting next year — a figure that will be impossible to meet if these auction results continue.
California and Quebec have been holding joint auctions since November 2014. The first five sold out completely, while the sixth sold 95 per cent of the allowances on offer. But Joint Auction #7, held in May, was a bust that saw only 11 per cent of allowances sold, and observers were anxiously awaiting results of the August auction to see if the market would rebound.
A summary report of Joint Auction #8 was released Tuesday, and it shows only 35 per cent of the total allowances were sold — an improvement from May, but a far cry from what the governments had budgeted for.
“Thirty-five per cent is definitely showing that there’s a problem,” said Duncan Rotherham, a carbon market expert who has done cap-and-trade modelling for Ontario energy firms. “And this is twice as scary as the first one because it’s a trend.”
In fact, the underlying numbers for California are even worse. Almost all of the allowances purchased in the California auction were special “consignment” allowances given to energy utilities; the state government sold just one per cent of its allowances on offer, which is disastrous for projects — such as California’s high speed rail plan — that are supposed to be funded from auction revenue. California had been raising about $650-800 million (Canadian) per auction, but May’s only raised about $13 million and August’s will be even worse. Quebec raised roughly $200 million per sold-out auction, but only raised $20 million in May’s auction.
The same problem could be about to hit Ontario’s government. The five-year, $8.3-billion climate change action plan is to be funded entirely from cap-and-trade revenue. The plan is seen as crucial to meet Ontario’s emissions-reduction targets, and is supposed to fund electric vehicle incentives, home energy retrofit programs, and many more green initiatives.
A statement from Environment and Climate Change Minister Glen Murray’s office said the province has built its action plan so it can adjust to auction results.
“As it is a market system, fluctuations are expected and the result of one single auction is not an indicator of the strength of the market,” the statement said, despite the fact Postmedia asked about two poor auctions in a row.
“It’s important to note that, on average, 80 per cent of total current allowances offered have been sold at auction,” the statement continued. “The Climate Change Action Plan has specific built-in ranges to adjust to auction results and was designed with that flexibility.”
Ontario’s cap-and-trade program starts up in January 2017, but for the first year the auctions will be isolated within the province. The joint auctions with California and Quebec start in 2018, and the total revenue from those auctions will be split proportionally between the three jurisdictions.
Rotherham said it’s unclear what will happen when Ontario starts its auctions — even when the auctions are Ontario-only. He said the secondary market, where businesses can trade the allowances they’ve purchased in auctions, could start seeing large discounts if nobody’s buying at the regular auctions.
“You could have buyers in Ontario saying, maybe we need to sit out of these Ontario auctions,” he said. “Why would I buy fully priced Ontario allowances when I can wait and buy discounted (California and Quebec) allowances?”
He also pointed out that if California businesses have stopped buying but Ontario’s are ready to gobble up allowances, the split auction revenue results in “a massive transfer of wealth from Ontario to California.”
When trying to diagnose the problem with the auctions, most people point to legal and political uncertainty in California. A lawsuit arguing the program is an unconstitutional tax is working its way through the courts, and the state government is battling political opponents over how to extend the program past 2020.
Dave Sawyer, whose EnviroEconomics firm has done cap-and-trade analysis for the Ontario government and other clients, said it’s not surprising the auctions are struggling, given the uncertainty in California. But he said it could also simply be that cap-and-trade is working and emissions reductions are happening faster than expected, meaning fewer allowances are necessary.
He said observers need to be patient because the system is so complex, and it will take a long time to know whether deeper problems are at play — or if this is just short-term turbulence from California’s political situation.
“I don’t know if this is a trend yet,” he said. “Does it indicate an underlying structural problem? I don’t think one can conclude that. There’s all kinds of reasons you could find to explain it.”
查看原文...
