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California Emissions Auction Kicks Off Amid Lawsuit, Low Trading Price

California will hold its first auction to sell carbon credits Wednesday amid growing political opposition, rule changes and legal threats that have already dampened carbon trading prices.

The California Cap-and Trade Program Greenhouse Gas Allowance Auction will offer 23,126,110 year 2013 state-issued pollution allowances and 39,450,000 year 2015 future allowances for sale, the state’s Air Resources Board said.

California’s cap-and-trade system, more than six years in the making, sets a limit on the amount of carbon emissions that state’s economy can produce. The cap will be cut over time to achieve a 15 percent reduction in emissions by 2020, from 1990 levels.

Emissions allowances are allotted to major polluters, such as power generation facilities and factories. Companies that exceed their limit must buy extra allowances or purchase credits from projects that cut greenhouse gas emissions.

The California Chamber of Commerce filed a last-minute lawsuit Tuesday seeking to invalidate the cap-and-trade auction. CalChamber argued the California Air Resources Board, or CARB, exceeded the authority granted to it under AB 32, the global warming bill signed into law by former governor Arnold Schwarzenegger in 2006.

Meanwhile, a number of business groups including the Western States Petroleum Association have launched a petition drive calling on Gov. Jerry Brown to stop the auction, the San Francisco Chronicle reported.

Backers of the cap-and-trade system believe it will reduce emissions and possibly be a blueprint for the rest of the nation. Opponents, however, argue it could drive refiners, cement makers and other large emitters to leave the state, causing economic strain.

Almost all of the 23.1 million credits California has distributed to utilities and big industry for 2013 compliance have been free, the New York Times reported. The auction held Wednesday will measure how they are valued on the market. The results of the auction will be announced Monday.

Concerns over lawsuits and opposition from companies such as refiner Valero Energy Corp., whose CEO described the regulations as being hijacked by academics and extremists, helped drive down California carbon prices ahead of the state’s first auction of permits. Futures contracts based on California carbon permits for 2013 dropped 40 cents to a record $12.25 a metric ton Friday, according to data compiled by CME Group’s Green Exchange and reported by Bloomberg.

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