Structural oversupply and credibility in California’s carbon market

For several years, California’s carbon market has cleared just above a quarterly auction price floor. Following an anemic February 2016 auction, however, secondary market prices fell below the price floor. At the May auction, 90% of available allowances went unsold—$880 million worth, if valued at the price floor. These developments suggest that a combination of allowance oversupply and uncertainty over post-2020 climate policy has destabilized the market.