RECALIBRATING CALIFORNIA’S CAP-AND-TRADE PROGRAM TO ACCOUNT FOR OVERSUPPLY

The report analyzes the California-Quebec linked cap-and-trade program, finding that allowance supply has consistently exceeded emissions from 2013 to 2015, leading to periodic undersubscription at auctions. While recent low auction sales (11% in May 2016 and 18% in February 2017) are viewed as aberrations, the author argues that systemic oversupply persists. Prospective analysis suggests that 78-86% of remaining allowances will be needed for compliance through 2020, with auction demand likely averaging 71-81%. To improve stringency and revenue stability, the report recommends lowering caps, switching to annual compliance, increasing the price floor, and reducing free allowance allocations.

• Empirical data from 2013 to 2015 shows that the number of allowances offered (the cap level) has consistently exceeded actual emission levels, creating the fundamental conditions for weak auction demand.
• Recent extreme drops in auction sales, such as 11% in May 2016 and 18% in February 2017, are considered long-term aberrations rather than a permanent state, as emitters must eventually purchase allowances to remain in compliance.
• Prospective analysis indicates that between 78% and 86% of all allowances planned for distribution through 2020 will be required for compliance by covered entities.
• Assuming a 28% free allocation rate, the report estimates that future auction sales will average between 71% and 81% of the allowances offered.
• Oversupply is more acute when analyzing the second compliance period (2015-2017) alone; if current emission trends continue, emitters may need 200 MMT more allowances, but 420 MMT will be offered across the next six auctions.
• The report estimates that California's Greenhouse Gas Reduction Fund will receive between $7.6 billion and $8.5 billion from the remainder of 2017 through 2020, based on current price floor projections.
• The current three-year compliance period provides excessive flexibility, which the author argues contributes to volatile revenue flows and quarterly demand swings.
• The program's price floor and holding limits are identified as critical stabilizers that prevent the total market collapse seen in other systems, such as the EU ETS.

APA

Busch, C. (2017). RECALIBRATING CALIFORNIA’S CAP-AND-TRADE PROGRAM TO ACCOUNT FOR OVERSUPPLY. Energy Innovation. https://energyinnovation.org/wp-content/uploads/RecalibratingCA_Cap-Trade_2017.pdf

Chicago

Busch, Chris. RECALIBRATING CALIFORNIA’S CAP-AND-TRADE PROGRAM TO ACCOUNT FOR OVERSUPPLY. Energy Innovation, 2017. https://energyinnovation.org/wp-content/uploads/RecalibratingCA_Cap-Trade_2017.pdf.

Wikipedia

{{cite report |last1=Busch |first1=Chris |title=RECALIBRATING CALIFORNIA’S CAP-AND-TRADE PROGRAM TO ACCOUNT FOR OVERSUPPLY |publisher=Energy Innovation |date=March 2017 |url=https://energyinnovation.org/wp-content/uploads/RecalibratingCA_Cap-Trade_2017.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{busch2017recalibrating, author = {Busch, Chris}, title = {{RECALIBRATING CALIFORNIA’S CAP-AND-TRADE PROGRAM TO ACCOUNT FOR OVERSUPPLY}}, institution = {Energy Innovation}, year = {2017}, month = mar, url = {https://energyinnovation.org/wp-content/uploads/RecalibratingCA_Cap-Trade_2017.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }