Forecasted BAU GHG Emissions Compared to the Allowance Cap Covered - - PowerPoint PPT Presentation

Price Containment

in the California C&T Market

Emissions Market Assessment Committee Quarterly Meeting

September 24, 2012

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162.8 159.7 394.5 382.4 370.4 358.3 346.3 334.2

50 100 150 200 250 300 350 400 450 2013 2014 2015 2016 2017 2018 2019 2020 Millions CO2e

Forecasted BAU GHG Emissions Compared to the Allowance Cap Covered Entities Only 2013 - 2020

BAU Forecast (Phase 1&2 entities) BAU Forecast (Phase1 entities) AB32 Cap

Price Containment Reserve

• CARB sets minimum price at which it will sell permits

in auction

• At high price, CARB stands ready to sell permits from

a reserve

• Limited quantities at prices of $40, $45, $50
• If all reserve quantities at these prices were sold and

the reserve were exhausted, what would happen?

– Is unrestricted price rise politically credible?

• RECLAIM during CA electricity crisis

– Defending a hard price cap likely to improve market

• Could be done by borrowing from post-2020

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Supply of Abatement with Containment Reserve

Allowance Price GHG Reductions Complementary Measures Costless Reshuffling Costly Reshuffling Offsets Electricity Dispatch Changes; Industrial Processes Changes; Fuels Consumption Changes 40 50

Supply of Abatement with Hard Price Cap

Allowance Price GHG Reductions Complementary Measures Costless Reshuffling Costly Reshuffling Offsets Electricity Dispatch Changes; Industrial Processes Changes; Fuels Consumption Changes Pcap

Benefits of Defending a Price Cap

• Limits the possible price and economic impacts

from volatility in supply or demand

– Especially if abatement supply is very inelastic

• Avoids possible market disruption if shortage
• ccurs near end of market period (2020)
• Eliminates price increase that incorporates low

probability of skyrocketing price

• Eliminates incentive to push price above current

reserve levels through market manipulation

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Costs of Defending a Price Cap

• Reduces predictability of California GHG

reductions

– Only if alternative is true commitment to reduction regardless of cost – A smooth functioning C&T market is more likely to be expanded to other states and countries

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