CARB Adopts Final GHG Cap-and-Trade Program
After surviving a highly publicized ballot box challenge and lawsuit, the California Air Resources Board (“CARB”) unanimously adopted a final greenhouse gas (“GHG”) cap-and-trade program regulation. The cap-and-trade program is considered to be the cornerstone of CARB’s implementation of California’s landmark Global Warming Solutions Act of 2006, Assembly Bill 32 (“AB 32”). The first of CARB’s cap-and-trade program auctions for allowances for use in 2013 will be held August 15 and November 14, 2012.
Major industrial sources and electric utilities must begin compliance with the cap-and-trade program in 2013. By 2015, distributors of transportation fuel and natural gas also become obligated to comply with cap-and-trade program requirements. In addition, the cap-and-trade program will likely create a market for CARB-certified offset projects in areas of livestock management, elimination of ozone depleting substances, urban forest projects, and U.S. Forest projects.
CARB’s cap-and-trade program does not require covered entities to limit their GHG emissions; rather it directs all covered entities to surrender enough GHG allowances to cover annual GHG emissions. CARB-certified offset projects that satisfy one of CARB’s four approved protocols can also be used to cover up to 8% of an entity’s annual GHG emissions. The number of available allowances and offset projects gradually declines over time.
After the initial auctions are conducted on August 15 and November 14, 2012, CARB’s allowance auctions will be held on a quarterly basis. CARB’s final cap-and-trade regulation sets forth the number of allowances that will be auctioned and the specific format for the allowance auctions. CARB will provide some allowances to covered entities in the early stages of the program to ease the transition. Some industrial sources will receive a direct allocation of allowances from CARB at the outset. In addition, electric utilities will be provided with allowances that they are eligible to sell at auction, with proceeds from those sales to benefit ratepayers and otherwise support AB 32 objectives. In addition, CARB has issued a series of Requests for Proposals for a cap-and-trade auction and reserve sale operator, financial services, a market monitor and a market monitor trainer.
CARB’s final regulation also describes the compliance instruments, registration procedures and accounts that will be used under the program. CARB has set forth the rules that will govern allowance trading, allowance banking, and utilizing offsets to cover GHG emissions as well. Finally, CARB has established how it will enforce and impose penalties under the program and identified the circumstances under which it will link up with and recognize instruments from other existing GHG programs.
In addition to ratifying the basic parameters that most expected would become part of the cap-and-trade program, CARB’s adoption of its final cap-and-trade program regulation has provided a significant amount of additional specificity that will no doubt be helpful to complying entities and other participants in California’s emerging carbon market. CARB’s final cap-and-trade program regulations should provide covered entities with some certainty that will allow them to effectively develop a GHG compliance strategy. In addition, CARB’s cap-and-trade regulation sets forth details for other potential participants in the GHG allowance and offset market that have been seeking a better understanding of precisely how California’s carbon market will function.
Meyers Nave advises public and private clients on a broad range of GHG-related and renewable energy matters. If you have any questions regarding this e-alert or any other questions regarding California’s cap-and-trade program, AB 32 GHG reporting and compliance requirements, GHG reduction strategies or initiatives, or participation in emerging carbon markets, please contact Ed Grutzmacher or Jessica Mullan.