California Moves Ahead with Carbon Market

July 19, 2011

After putting litigation and procedural setbacks behind them, the California Air Resources Board (ARB) is moving forward with implementation of the state’s greenhouse gas cap-and-trade program, which is now slated to commence Jan. 1, 2013. Running in parallel, the California Public Utility Commission (CPUC) is moving forward with implementation of the most aggressive renewable portfolio standard (RPS) in the country.

On July 11, 2011, ARB released a series of detailed revisions to its proposed cap-and-trade regulations. The changes, a testament to designing a market based on bureaucracy rather than rational economics, address an array of key issues under California’s proposed greenhouse gas cap-and-trade regulations including revisions to definitions applicable to the “first deliverer” compliance approach for the power sector, the disposition of emission allowance allocations for public and investor-owned utilities, early action crediting, thresholds and parameters for biomethane compliance obligations (e.g., biogas facilities have compliance obligations, but existing waste-to-energy facilities do not), designated transfer, exchange and compliance holding accounts, treatment of voluntary renewable energy investments, registration issuance and compliance use for carbon offset credits, timing and format of allowance auctions, and scope of ARB enforcement under the regulations.

Under the revised draft regulations, the program’s allocation, auction, trading, and other activities would commence in 2012 before the start of covered entities’ (businesses emitting more than 25,000 metric tons per year of carbon dioxide equivalent) compliance obligation and the initial compliance period in 2013. The cap for utilities will be set for 2012 at 90% of utilities’ 2008 emissions and will decline to 85% by 2020. The proposed changes can be found here.

A final rule is expected to be published in August, followed by a subsequent comment period, and the agency has established Oct. 28, 2011, as the internal date by which finalized regulations must be filed with the California Office of Administrative Law.