SAN FRANCISCO, May 15 (Reuters) - California's benchmark carbon contract slipped 8 cents from its close one day earlier to settle at $11.73 a tonne on Thursday as traders positioned themselves ahead of Friday's state-run allowance auction, where permits are expected to clear near the floor price.
The state will offer about 17 million allowances covering emissions this year and 9.2 million allowances covering emissions in 2017 at the auction, the cap-and-trade program's seventh overall.
The program requires that the permits sell for no less than $11.34 a tonne. Carbon dealers on Thursday said they don't expect the permits to fetch much more than that.
"I expect a very boring auction that clears within 25 cents of the market," one trader said Thursday.
A broker said he expects the current year allowances to clear at $11.49 a tonne, one cent higher than they went for at the previous sale in February.
The auction results will be made public on Wednesday.
Demand for carbon allowances in the secondary market has been weak for the past three months on the belief that the market is oversupplied with permits.
The lack of liquidity has frustrated market participants hoping to turn a profit by facilitating transactions in the nearly 18-month-old market.
"This soft take-off of the market is to be expected," said one new market entrant. "It just requires patience for new firms like us."
Trading could pick up next year when the program expands to include distributors of natural gas, including Pacific Gas & Electric and Southern California Gas & Electric , a second trader said.
Distributors of transportation fuels will also come under the program's cap next year. They are expected to pass the cost of carbon allowances onto drivers at the pump.
The second trader said it's also possible that some industrials in the state have not yet purchased allowances and may jump into the market between now and November, when businesses will for the first time be required to submit allowances to cover their emissions.
The market might also get a boost when the state announces its much anticipated midterm emissions target, which will give participants an idea of how aggressively the state plans to cut its output of heat-trapping greenhouse gases between 2020 and 2035.
That announcement isn't expected to come out until the end of this year or early next, according to a spokesman at the California Air Resources Board, which oversees the California carbon market. (Reporting by Rory Carroll; Editing by Eric Walsh)