Article content continued

Ontario has budgeted for about $2 billion annually from cap-and-trade auctions, starting next year — a figure that will be impossible to meet if these auction results continue.

California and Quebec have been holding joint auctions since November 2014. The first five sold out completely, while the sixth sold 95 per cent of the allowances on offer. But Joint Auction #7, held in May, was a bust that saw only 11 per cent of allowances sold, and observers were anxiously awaiting results of the August auction to see if the market would rebound.

A summary report of Joint Auction #8 was released Tuesday, and it shows only 35 per cent of the total allowances were sold — an improvement from May, but a far cry from what the governments had budgeted for.

“Thirty-five per cent is definitely showing that there’s a problem,” said Duncan Rotherham, a carbon market expert who has done cap-and-trade modelling for Ontario energy firms. “And this is twice as scary as the first one because it’s a trend.”

In fact, the underlying numbers for California are even worse. Almost all of the allowances purchased in the California auction were special “consignment” allowances given to energy utilities; the state government sold just one per cent of its allowances on offer, which is disastrous for projects — such as California’s high-speed rail plan — that are supposed to be funded from auction revenue. California had been raising about $650 million to $800 million (Canadian) per auction, but May’s only raised about $13 million and August’s will be even worse. Quebec has raised roughly $200 million per sold-out auction, but only raised $20 million in May’s auction.