California Adopts Final Cap-and-Trade Regulations

 

On October 20, 2011, the California Air Resources Board (CARB) adopted final regulations for a cap-and-trade program that will help the state reduce greenhouse gas emissions to 1990 levels by 2020.  Beginning in 2013, cap-and-trade regulations will apply to all major industrial sources and electric utilities, and will expand in 2015 to cover the distributors of transportation fuels, natural gas, and other fuels.  An overall emission cap applies; individual companies are not required to reduce emissions to a certain level, but they must hold allowances to cover their emissions.  CARB will freely distribute the majority of initial allowances to industrial sources to prevent emissions leakage.  Electric utilities will also receive free allowances, some of which must be sold at auction to benefit ratepayers.  Additional allowances can be purchased at quarterly auctions or from a trading market.  The amount of allowances available will decline by about 3 percent each year as emissions are reduced.  In addition to allowances, offsets from CARB-certified projects in forestry management, urban forestry, dairy methane digesters, and the destruction of ozone-depleting substances may be used to cover 8 percent of a company’s emissions.  CARB expects the regulations to cover the sources of 85 percent of the state’s emissions from about 360 businesses and 600 facilities.  Overall, the cap-and-trade program will be one of the main tools used to meet the emissions reductions targets established by California’s climate change legislation, AB 32.

California’s cap-and-trade regulations are designed to link with similar programs in U.S. states and Canadian provinces that are members of the Western Climate Initiative.  The regulations were set to be implemented in January 2012, but concerns about implementation preparedness delayed the program for a year.  CARB developed the regulations over three years and received input from various stakeholders through comments and public meetings and workshops. Several companies representing several economic sectors voiced concerns at the CARB’s October hearing about the economic cost of compliance with the cap-and-trade program.  In an attempt to address these concerns, CARB also passed an adaptive management plan to alleviate implementation challenges.  Despite the apprehension of some industries over cap-and-trade, AB 32 enjoys broad public support in California.  Voters rejected a November 2010 ballot proposition to suspend AB 32 by a nearly 24 point margin.  Overall, CARB believes that its cap-and-trade regulations will help California attract significant investment in clean technology and complement the state’s existing initiatives to reduce pollution and increase energy efficiency.

 

CARB Press Release

CARB Cap-and-Trade Regulations - October 2011