Demand Plummets For California Pollution Credits

California Governor Jerry Brown and state lawmakers will have to reassess plans to spend billions of dollars on environmental programs.

Sales of pollution credits in the state’s greenhouse gas reduction program dropped off sharply this past quarter, as companies bought just a fraction of those up for sale.

The California Air Resources Board announced the results of its latest cap-and-trade auction Wednesday.

Since the full cap-and-trade program went into effect last year, companies have bought every emissions credit California has sold—until now.

The state usually makes $600 million from an auction, this time it will bring in roughly $10 million.

Ross Brown from the state’s non-partisan Legislative Analyst’s Office says the drop-off could be due to an oversupply.

“Over the long-term allowances will be needed, and so the allowances that will be offered through the auction will need to be purchased,” Brown says. “But in the short-term it’s hard to know and it depends on the underlying supply and demand.”

The program also faces a legal challenge from the California Chamber of Commerce. Governor Jerry Brown and state lawmakers have relied on cap-and-trade bringing in billions of dollars to fund environmental programs, high speed rail and Cal Fire in next year’s budget.

The state has a $500 million cap-and-trade reserve for lower revenue, but this slowdown will still force them to recalibrate.