Washington (Platts)--12Nov2012/444 pm EST/2144 GMT

The California Air Resources Board is on track to hold its first auction of greenhouse gas allowances Wednesday, launching the world's second-largest cap-and-trade program, CARB Chairwoman Mary Nichols said Monday at a Platts conference in San Francisco.

The auction will offer about 23.126 million vintage 2013 allowances and 39.45 million vintage 2015 allowances. The minimum price that a GHG allowance can be sold for is $10. Each GHG allowance represents one metric ton of emissions.

"Our goal is not to have high prices," Nichols said at the 8th Annual California Power Market Conference. "Our goal is to have a successful auction in which people get the allowances that they need, and we get to move beyond that milestone and move on to the next."

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The vintage refers to the first year in which a GHG allowance can be used. Compliance entities must hold enough GHG instruments to cover their emissions.

Apart from GHG allowances, offset credits can be used to satisfy up to 8% of an annual obligation.

"We're not expecting high prices, but we are expecting prices that clear the bottom, which is the $10 reserve price, and we'll be very happy with that," Nichols said.

At the start of the program, the covered sectors are power generators, including electricity importers, and large industrials, such as oil refiners. Beginning in 2015, the cap expands to include fuel distributors.

Jeff King, managing director of environmental markets at Scotia Bank, said in a phone interview that he expects the vintage 2013 GHG allowances to clear slightly above the floor price.

There is a "decent probability" that the vintage 2015 GHG allowances will sell at $10, King said, noting the large volume for sale.

Although new compliance entities will enter the market in 2015, they are still several years away from needing these GHG allowances, which may soften demand at Wednesday's auction, King said.

Samantha Katz, managing director at BGC Environmental Brokerage Services, told the Platts conference audience that much can change in the next few years, such as litigation or legislative tweaks.

These types of developments represent long-term risks compliance entities face, Katz said.

Assuming the independent market monitor gives the auction a clean bill of health, CARB is supposed to release the auction results November 19.

--Geoffrey Craig, geoffrey_craig@platts.com
--Lisa Miller, lisa_miller@platts.com
--Edited by Carla Bass, carla_bass@platts.com

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