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State environmental leaders this week hailed California's first cap-and-trade auction a success, but it was hardly so for the state budget.

Gov. Jerry Brown and state lawmakers assumed three auctions this fiscal year would generate $1 billion total for the state, half of which they want to plug the state budget deficit. But most of the $289 million raised this month is dedicated for utilities and their ratepayers, leaving only $55.8 million for state purposes.

A low auction price for 2013 credits and low demand for future credits suggest that California will fall well short of its $1 billion projection this year. The nonpartisan Legislative Analyst's Office estimates that if trends hold in the February and May auctions, the state may only raise about $140 million in the first year.

Even if the state took all of that for the budget - which would anger environmentalists who want new clean energy programs - it would still miss its budget projection by $360 million. The LAO previously questioned whether the state could legally use $500 million in cap-and-trade auction money for the budget.

"The likelihood of there being a hole in the budget has increased," said Tiffany Roberts, an LAO analyst who focuses on climate change issues. "Not only do we question the viability of using the $500 million, but if these assumptions hold, it's unlikely there's even going to be $500 million."

Brown will propose his 2013-14 budget in January. Department of Finance spokesman H.D. Palmer downplayed concerns.

"We've got two more auctions to go," Palmer said. "The budget as enacted in June reflects there will be $500 million in general fund relief by applying these to (emissions reduction) programs. If there's any change to those projections, we will reflect it in January."

Post updated with revised estimate from Legislative Analyst's Office.



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