California Releases Preliminary Rules for GHG Cap-and-Trade Program
December 16, 2009
The California Air Resources Board (ARB) released a preliminary draft version of the state's greenhouse gas (GHG) cap-and-trade regulation on November 24. As proposed, the cap-and-trade regulations will take effect in 2012 and will apply to 605 of the state's largest stationary emitters of GHGs, including industries and power plants, along with electricity imports. Starting in 2015, the regulations will also apply to fuel suppliers, to help address emissions from vehicles and from smaller stationary emitters of GHGs, such as homes and commercial businesses. The regulations will set a cap on GHGs emissions that will decline each year through 2020, in order to help bring the state's GHG emissions back to 1990 levels, which represents a decline of about 15% from today's emission levels. The cap-and-trade program is just one part of achieving this goal; other measures include building and appliance efficiency standards, strong energy efficiency programs, a statewide renewable energy requirement, clean car standards, a low-carbon fuel standard, and targeted usage fees. The goal was set by the state's Global Warming Solutions Act, which was signed by Governor Schwarzenegger in 2006.
Under the proposed cap-and-trade program, covered entities will receive a declining number of tradable emissions credits, a portion of which will be available through an auction. A trading system will allow entities with higher emissions to buy credits from entities that have reduced their emissions. This effectively sets a market-based price on GHG emissions, which encourages companies to invest in ways to reduce their emissions. However, the program is not prescriptive; it allows each company to find the most cost-effective means of cutting emissions, while allowing companies that lack cost-effective approaches to buy emission credits. The proposed program includes the limited use of offsets, which allow companies to invest in other ways to reduce GHG emissions. When fully in place, the program would cover 85% of California's GHG emissions. For flexibility, the trading program is intended to be linked to the Western Climate Initiative, which includes a large portion of Canada and the western United States. See the ARB press release, the draft cap-and-trade regulation (PDF 803 KB), and for background, the scoping plan for achieving the state's GHG goal (PDF 3.5 MB). Download Adobe Reader.
ARB also announced in mid-November that more than 97% of the state's 605 largest GHG-emitting facilities are complying with its mandatory reporting requirements for GHG emissions. To date, 591 facilities have completed their GHG emissions reports for 2008. ARB is working with the remaining facilities to meet their reporting requirements. Additionally, ARB noted that California is the first state in the country to accredit third-party professionals to verify reported GHG emissions. The first graduates to receive accreditation to review GHG emissions data for California's mandatory reporting program include 101 individual verifiers and 17 businesses. ARB's goal is to accredit 200 by year's end. The verifiers can contract to review and substantiate emissions reports filed by the largest sources of greenhouse gas emissions in the state. Verification of all reported emissions will be required starting in 2010. The ARB adopted a mandatory reporting regulation for the state's largest stationary facilities in late 2007, in preparation for the coming cap-and-trade regulations. See the ARB press release and the GHG reporting Web page.