OREANDA-NEWS. July 31, 2017. The extension of California's carbon market is likely to lead to higher demand at the year's remaining allowance auctions.

California lawmakers gave companies much greater certainty about the cap-and-trade's long-term future after passing AB 398, a bill that reauthorizes the program through 2030 while leaving it mostly intact. That certainty, combined with the end of a multi-year lawsuit, should drive 2017 auction participants to snap up allowances before price floors rise in the years ahead.

Businesses regulated under California's cap-and-trade program have until 2018 to account for their allowance needs for the 2015-17 compliance period. Some companies held off on purchasing allowances at recent auctions while they waited for a resolution to the lawsuit and for the legislature to determine the future of the program. But with a limited number of auctions remaining this year, those companies must now scramble to ensure compliance under the cap.

California and Quebec will offer nearly 64mn current vintage allowances at the next quarterly auction on 15 August. The final auction of the year will be held in November with the number of allowances up for sale yet to be determined.

Some analysts believe the legislation's impact will extend to the auctions through 2020, the final year of the current program.

"Auctions will sell out in the coming years absent a major exogenous shock," said Chris Busch, research director at the clean energy think tank Energy Innovation. Should that prediction hold true, Busch says the auctions could generate more than $1.3bn of additional revenue for California's Greenhouse Gas Reduction Fund, which distributes funds for projects and programs that cut CO2 and other climate pollutants. The auctions to date have generated more than $4.9bn for the state.

More consistent auction results will likely create broader support for the carbon market from lawmakers, many of whom view the program as an important source of funding for projects in their districts. Uneven interest at recent sales led to complaints from the legislature that cap and trade was not working as intended.

The February auction sold just 18pc of the 65mn current vintage allowances up for sale, while May's auction sold all of the more than 75.3mn current vintage allowances, resulting in a difference of nearly half a billion dollars in revenue.

The vote to extend California's cap-and-trade program should only further bolster market sentiment with Ontario's own carbon market, which launched this year and sold out of current vintage allowances in its first two auctions.