The Stillwater C&T Auction Newsletter presents our analysis of the California-Québec Joint Cap and Trade (C&T) Auction. Analysis of the data provides insight into the allowance demand and price trends. In addition to the current auction and the auction trends, we also track the California Carbon Allowances (CCA), California Carbon Offsets (CCO), and Cap at the Rack (CAR) trends. CAR is the C&T assessment of greenhouse gas (GHG) emissions from the use of fossil transportation fuels.
California’s C&T: High Stakes for Extension and Reform
In this 3Q2025 edition of Stillwater’s California C&T Newsletter, we see the program facing uncertainty as multiple forces converge to reshape its future. The latest auction showed increasing prices, after falling the last two quarters, with current allowances settling at $28.76/metric ton (MT) and advanced allowances at $28.50/MT, up from $25.87/MT and $26.15/MT, respectively in the previous quarter.[1] In July, Clean & Prosperous California released an analysis determining the state has lost nearly $3 billion over the past year, amid questions about the program’s future beyond 2030. Since 2013, the program has generated $31 billion for climate investments and driven a 14% decline in emissions, but California is falling short of its climate targets, achieving only 2.5% annual emission reductions instead of the needed 8.8% to reach carbon neutrality by 2045. Lawmakers currently working on extending and reforming the program must balance competing pressures: strengthening the program to meet climate goals versus controlling costs for consumers, as higher allowance prices translate directly to increased gasoline and energy costs that could burden California households by hundreds of dollars annually.
Smart Brevity: California must quickly resolve C&T extension and reform to restore market confidence and revenue streams, but any solution will require trade-offs between environmental ambition and economic affordability in a political landscape increasingly focused on consumer costs.
Quarterly Auction Summary and Trends
The 3Q2025 joint auction of allowances was held on August 20, 2025, and CARB published the auction data August 27, 2025. A total of nearly 51.9 million MT of 2025 allowances were sold at a settlement price of $28.76/MT which was up from $25.87/MT in the second quarter auction. In the advanced auction, nearly 7 million MT of allowances were sold at a settlement price of $28.50/MT, up from $26.15/MT in the second quarter auction. The current and advanced auctions were over-subscribed with all the offered allowances sold.
The settlement price for the current CCAs was $2.89/MT above the auction reserve price, and the settlement price for the advanced CCAs was $2.63/MT above the auction reserve price. The history of current and advance auction settlement prices and the auction reserve price are shown in Figure 1 below.
Figure 1: Cap & Trade Quarterly Auction Results
The allowance volumes offered in the current and advanced auctions are shown in Figures 2 and 3 along with the coverage ratio for each auction. The chart includes allowances for the California (CARB) and Québec (MELCC) programs. The coverage ratio – an indication of the auction demand for allowances – is the total qualified bid allowance volume divided by the allowance volume offered. A coverage ratio less than 1.0 indicates that the auction was not fully subscribed. The current auction coverage ratio increased in the third quarter to 1.45, up from 0.86 in the previous quarter. The advanced auction coverage ratio increased in the third quarter to 1.67, up from 1.25. CA Entity Consignment credits are those owned by California electric and natural gas utilities who are required to market them through the auction process rather than in the secondary market.
Figure 2: Current Auction Offered and Coverage
Figure 3: Advanced Auction Offered and Coverage
As shown in the figure below, 96 bidders qualified for the third quarter auction, a decrease from the prior quarter. The percentage of allowances purchased by covered entities was 84.8% and 79.8% in the current and advanced auctions, respectively. The current auction increased from the previous quarter’s percentage of 84.8%, and the advanced auction increased from 79.8%. The trends of qualified bidders and percent purchased by covered entities are shown in Figure 4.
Figure 4: Number of Qualified Bidders and Percent Purchased by Covered Entities
Figures 5 and 6 below show the bid trends for the settlement, maximum and minimum bid prices, and the allowance-weighted median bid price for the current and advanced auctions. The third quarter’s current auction maximum remained steady with the previous quarter at $60.47/MT, as did the minimum bid price at $25.87/MT. The median bid price decreased to $28.94/MT from $30.98/MT the previous quarter. For the advanced auction (Figure 6), the median bid price increased to $27.56/MT up from $26.57/MT in the previous quarter.
Figure 5: Current Auction Bid Price Trends
Figure 6: Advanced Auction Bid Price Trends
Note: The scale for the maximum advanced auction price is truncated because the maximum price reported in the fourth quarter of 2024 was $287.00/MT which is clearly out of line with any of the other values. We believe this value is a reporting or bid input error.
Figure 7 below portrays the trend of the secondary market, current auction, and auction reserve prices. This chart is posted on CARB’s website and reproduced here. The chart indicates that secondary market and auction settlement prices hovered close to the auction reserve price until mid-2021 when the values started to escalate to the current level. This trend peaked in late-2023 and appears to be reversing due to an increasing credit surplus. In the marketplace, California C&T allowances are called California Carbon Allowances (CCAs) and the California C&T offsets generated by approved offset projects are called California Carbon Offsets (CCOs).
Figure 7: Secondary Market Price Auction Prices, and Auction Reserve Prices
Source: CARB C&T Program Data Dashboard
Notes:
- California and Québec held their first joint auction in November 2014.
- Current Auction Settlement Price is the price at which current vintage allowances sold at auction.
- Auction Reserve Price is the minimum price at which allowances can be sold at auction.
- Secondary Market Price is a composite of commodity exchange futures contract prices for near month delivery and a survey of OTC brokered transactions for California Carbon Allowances. Secondary market prices are provided with permission of Argus Media Inc.
- Secondary Market Price data is given through March 10, 2025.
Market Transfers
The Compliance Instrument Tracking System Service (CITSS) is a management and tracking system for accounts and compliance instruments issued through participating Western Climate Initiative (WCI) cap-and-trade programs. Aggregated data for transfers of current and advanced CCAs and CCOs by project type are reported in CARB’s Market Transfers Report (MTR) each quarter.
CARB published the 2Q2025 CITSS MTR on August 1st. There were 58.6 million MT (58,566,281 MT) of current vintage CCAs, 6.5 million MT (6,500,000 MT) of future vintage CCAs, and 4.2 million MT (4,170,595 MT) of CCOs transferred. The weighted average price of transfer was $26.80 per current CCA, $27.94 per advanced CCA, and $16.67 per CCO. These prices represent a decrease for current CCAs, advanced CCAs, and CCOs from $30.41/MT, $30.15/MT, and $17.77/MT compared to the previous quarter, respectively.
Market transfer trends for current CCAs, advanced CCAs, and CCOs are shown in Figure 8.
Note: CARB has not included the total number of transfers since the fourth quarter of 2022 report. As such, Figure 8 terminates these trend lines at the end of 2022.
Figure 8: CITSS Transfers by Quarter
The trends of the current CCA, advanced CCA, and CCO weighted average prices are shown in Figure 9. The figure illustrates that the weighted average transaction price for current and future CCAs has decreased over the past year. The weighted average transaction price for CCOs has decreased this quarter, following an increasing trend in the second half of 2024.
Figure 9: Transaction Weighted Average Price
Estimated Cost of Cap at the Rack on Fossil Fuels
To account for the tailpipe GHGs emitted from vehicles, liquid fossil fuels used in transportation are assessed a C&T allowance obligation. Typically, this assessment occurs when these fuels are loaded at the product terminals into tank trucks for delivery to retail or end-user sites. Thus, this assessment is dubbed “Cap at the Rack” (CAR) and becomes the obligation of the compliance entity.
The estimated cost of CAR is a fuel-specific GHG emissions factor for the fuel multiplied by the CCA price. Figure 10 illustrates the trend of the prompt current CCA price and the resulting CAR for CARBOB and ULSD. The CAR for CARBOB in July averaged 24 cpg, bringing the third quarter average to 24 cpg. The CAR for ULSD in July averaged 28 cpg, bringing the third quarter average to 28 cpg. This marks a decrease in CAR from the previous quarter for both fuel types.
Figure 10: CCA Allowance Prompt Price and Cost of Cap at the Rack
Highlight Analysis: High Stakes for C&T Extension and Reform
As we explored in our last update, California’s C&T program stands at a critical juncture, with federal pressure on state climate programs from the Trump administration and CARB’s rulemaking on hold until the proposed 2045 extension passes the legislature this September. In this highlight, we look at carbon reduction and revenue performance, the cost of sustained regulatory uncertainty, and the trade-offs that need to be considered if the program is extended and reformed.
Carbon Reduction and Revenue Performance: A Critical Source of State Funding
Since launching in 2013, the C&T program has driven a 14% decline in overall emissions. According to the Governor’s office, the program has generated $31 billion for climate investments over the past decade, with $11 billion allocated to climate change reduction-related projects around the state, and $17 billion in reserve to fund future projects including affordable housing near job centers, high-speed rail, and zero-emission transport options in underserved communities. According to California’s Legislative Analyst’s Office (LAO), 25% of annual revenues are appropriated to the High-Speed Rail Project, while 20% are appropriated to the Affordable Housing and Sustainable Communities Program. The cumulative C&T spending by area is shown below.
Figure 11. Cumulative C&T Spending by Area
Source: LAO
About two-thirds of current C&T revenues are statutorily dedicated to specific programs. Funding streams for these programs would disappear if the C&T expires in 2030.
The Cost of Sustained Regulatory Uncertainty
According to an analysis by Clean & Prosperous California, the state has lost nearly $3 billion in revenue over the past year as allowance prices dropped from a high of $42 in February 2024 to $26 in May 2025 amid uncertainty about the program’s future. The analysis estimates the state will continue losing between $600 million and $1 billion from each quarterly auction until the legislature acts to extend the program and CARB updates the rules. In spite of continued regulatory uncertainty, in the latest auction current allowances traded at $28.76/MT, and all available credits were sold. Concerned about the lost opportunities, a group of 48 businesses, including Shell and Phillips66, sent a letter to Governor Newsom and the legislature referencing the Clean & Prosperous California study and urging immediate legislative and regulatory action.
Extension and Reform Must Balance Program Stringency with Cost to Consumers
According to the LAO, the C&T program reduces greenhouse gases (GHGs) in a relatively cost-effective manner, by providing private sector flexibility to determine which emission reduction activities are the least costly and creating financial incentives to pursue these lower cost activities. In addition, it provides greater certainty for California to meet its carbon-reduction goals by serving as a critical backstop mechanism. When other climate policies fall short, the C&T ensures that covered entities reduce emissions further to compensate for the gap. The C&T’s role as the backstop mechanism is becoming increasingly important as carbon-reduction progress in the state has slowed. According to the LA Times, California is not on pace to meet its targets of 40% reduction by 2030 and 85% reduction by 2045. Emissions are falling at 2.5% rate annually while the state needs 8.8% annual reductions to reach carbon neutrality by 2045. If the C&T program’s job is to make up for the shortfall, lowering the cap is necessary to meet California’s goals.
But the trade-off for a more stringent program is higher allowance prices, leading to increased compliance costs, which are ultimately passed on to consumers. This can be seen in the Cap-at-the-Rack (CAR) price trend. The recently low allowance price has depressed CAR prices, averaging 24 cpg for CARBOB and 28 cpg for ULSD in July 2025, compared to a high of 36 cpg for CARBOB and 42 cpg for ULSD when allowances prices were at their peak in February 2024. Based on analysis from the LAO, if allowance prices reach $95, it would translate to a CAR price of about 74 cpg, increasing gasoline costs for the average California household by $700 per year.
The refining industry is focused on the affordability argument, with Kathy Reheis-Boyd of the Western States Petroleum Association telling the LA Times, “Updates to the program need to bring down costs to ensure California’s oil and gas industry can compete in a global market while protecting workers, lowering emissions, and producing the unique fuel we rely on. If policymakers fail to get cap-and-trade’s costs under control, it will send a clear message to those considering whether or not to remain in California. A well-designed market-based system is the best way to achieve our climate goals, but affordability must be a priority.”
Indeed, following a presidential election that served largely as a referendum on inflation and a contentious LCFS rulemaking process featuring vocal concerns about consumer costs, California legislators are now highly sensitive to affordability issues.
Conclusion
California’s government is under pressure to ensure the stability of the C&T program quickly. However, the challenge is reforming the program to enhance environmental effectiveness without triggering consumer backlash.
Are you looking for expert advice around the West Coast Cap & Trade programs?
Contact Stillwater to leverage our expertise.
[1] The Current Auction offers credits currently available for use in compliance (in the August 2025 auction, this included vintages from 2025). The Advanced Auction offers credits available for compliance in future years (in the August 2025 auction, this included 2028 vintage credits).