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After Court Decision, Demand Rebounds For California Pollution Permits

SACRAMENTO, Calif. (AP) - Demand for California pollution permits rebounded in the first quarterly auction since an appeals court upheld the program, generating about $500 million for the state, according to results released Wednesday.

The California Air Resources Board reported that it sold out of permits to release greenhouse gases during 2017 or later. The demand exceeded the total supply for the first time since 2015, pushing prices above the minimum.

However, demand remained skimpy for permits that allow pollution in the future as the Legislature debates whether to continue the cap-and-trade program beyond 2020. About 22 percent of those permits were sold.

"The debate is adding to a sense of political uncertainty about what's going to happen in 2021, and that is depressing market sentiment," said Chris Busch, research director at Energy Innovation, a San Francisco company that researches and analyzes climate policies.

The cap-and-trade program is one of California's highest-profile efforts to reduce greenhouse-gas emissions. Under legislation approved in 2006, the state caps annual carbon emissions and sells permits giving companies the right to release carbon into the atmosphere. Companies can buy permits at auction, trade them with other companies and investors, or reduce their emissions.

The program is a key source of funding for a planned high-speed train between Los Angeles and San Francisco along with a variety of programs to reduce pollution.

But the money largely dried up last year when demand for permits plummeted due in part to uncertainty from a lawsuit contending the auctions violate the California constitution. An appeals court rejected the argument in April and it's been appealed to the California Supreme Court.

Prices rose in the secondary market immediately after the decision, a strong indication that the case was a significant factor in depressing demand, said Erica Morehouse, an attorney with the Environmental Defense Fund.

Still, the program's long-term future is in doubt as it nears its 2020 expiration date. Gov. Jerry Brown, who has made addressing climate change a legacy issue as he nears the end of his term, is asking lawmakers to extend it with a two-thirds vote to insulate it from lawsuits.

The Legislature is considering a variety of methods for continuing to tax carbon emissions, from modifying the current program to ending and redesigning it. No consensus has emerged.

Companies still need permits to cover their near-term emissions regardless of the Legislature's decision about the program's future.

 

Copyright 2017 The Associated Press.

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