California’s proposed high-speed rail project hit another hurdle as the latest auction in California’s cap-and-trade market for greenhouse gasses generated revenues sharply below expectations. Buyers purchased just 2% of the carbon credits whose sales are meant to supply funding to the high-speed rail project, according to the LA Times.
The rail authority expected about $150 million, but received $2.5 million of the $10 million that was sold at the quarterly auction, conducted May 18th. Less need for the credits and pending litigation that may overturn the entire system are possible causes.
Regardless of the reason, the lack of buyers is a stark example of the uncertainty and risk of relying on actively traded carbon credits to build the bullet train, a problem highlighted in recent legislative testimony by the Legislative Analyst’s Office and a peer-review panel for the $64-billion high-speed rail, as noted in the LA Times.
To fulfill its legal obligation of matching about $3.5 billion in federal grants, the rail authority is relying on the greenhouse gas fees. Now, it is unclear whether the shortfall will exacerbate the cash-flow problem the authority has been experiencing.
In the recent 2016 plan that was released by the authority, they were counting on getting about $10.6 billion from the greenhouse gas fees through 2050. The fourth quarterly auctions would raise $2.4 billion, with $600 million going to the rail project, said H.D. Palmer, a spokesman for the California Department of Finance. There is a $500-million reserve set up in anticipation of volatility that could help close the gap.
“We anticipated there would be ups and downs, as there always are in markets.” said Dave Clegern, spokesman for the Air Resource Board. Softening demand first appeared in February of 2015, when about 95% of the available credits were sold. It was the first time since 2012 that any credits were left unsold.
Last week, the Federal Railroad Administration modified one of its two grants to allows the state to spend all of its money by next year, but not match its funding until 2022. If the auction results reflect a long-term shift in greenhouse gas revenue, it would raise new concerns about the viability of building the bullet train.
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