The California Air Resources Board (ARB) has adopted the final cap-and-trade regulation, putting into place another key element of the state's climate plan.
The regulation sets a statewide limit on sources responsible for 85% of California's greenhouse-gas emissions and establishes a price signal needed to drive long-term investment in cleaner fuels and the more efficient use of energy. The program is designed to provide covered entities the flexibility to seek out and implement the lowest-cost options to reduce emissions, ARB says.
The regulation will cover 360 businesses representing 600 facilities and is divided into two phases. The first phase, which begins in 2013, will include all major industrial sources and electric utilities, and the second, which starts in 2015, brings in distributors of transportation fuels, natural gas and other fuels.
Companies are not given a specific limit on their greenhouse-gas emissions but must supply a sufficient number of allowances (each the equivalent of one ton of carbon dioxide) to cover their annual emissions.
As the cap declines each year, the total number of allowances issued in the state drops, requiring companies to find the most cost-effective and efficient approaches to reducing their emissions. The first compliance year when covered sources will have to turn in allowances is 2013.
According to ARB, by 2020, the state will reach the equivalent of the 1990 level of greenhouse-gas emissions, as required under A.B.32, California's climate-change legislation. This represents a 15% reduction compared to what the emissions would be in 2020 without any programs in place.
To ensure a gradual transition, ARB will provide the majority of allowances to all industrial sources during the initial period (2013-2014), using a calculation that rewards the most efficient companies. Those that need additional allowances to cover their emissions can purchase them at regular quarterly auctions ARB will conduct, or buy them on the market. The first auctions of allowances (for 2013 allowances) are slated for August and November 2012.
Electric utilities will also be given allowances to be sold at auction for the benefit of their ratepayers and to help achieve A.B.32 goals.
Eight percent of a company's emissions can be covered using credits from ARB-certified offset projects, promoting the development of beneficial environmental projects in uncapped sectors such as forestry and agriculture, ARB explains.
The regulation includes rigorous oversight and enforcement provisions, and is designed so that California may link up with programs in other states or provinces within the Western Climate Initiative, including British Columbia, Ontario and Quebec.
"Cap and trade is another important building block in California's effort to create a clean and vibrant economy," says ARB Chairman Mary D. Nichols. "It sends the right policy signal to the market, and guarantees that California will continue to attract the lion's share of investment in clean technology."