Oops!

Capitol Alert
By Dan Walters
dwalters@sacbee.com
May 25, 2016 4:34 PM

  • State had anticipated more than $500 million from sale of allowances
  • The state will see just $10 million from latest auction
  • Shortfall could affect ambitious spending plans, including high-speed rail

Gov. Jerry Brown and the Legislature got some bad news Wednesday about plans to spend more than $3 billion in proceeds from the state’s “cap-and-trade” auction of carbon dioxide emission allowances.

The results of last week’s quarterly auction were posted and revealed that instead of the $500-plus million expected from the sale of state-owned allowances, the state will get only about $10 million, less than 2 percent.

The poor results confirmed reports circulating in financial circles that the cap-and-trade program has begun to stumble. February’s auction resulted in some allowances being left unsold – the first time that had happened. Afterward, there was a brisk trade in the secondary market as speculators began dumping their holdings due to uncertainty about the future of the program, which may expire in 2020.

Market followers said the sell-off indicated there would be little demand during the May auction, and the results bore out that expectation.

Brown has submitted a plan to spend $3.1 billion in auction proceeds in 2016-17, both leftover funds from past auctions and an estimated $2 billion from those during the fiscal year. The plan covers a wide variety of projects and programs, including a major allocation to support the state’s high-speed rail project.

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