California Air Resources Board Adopts CO2 Cap-and-Trade

SACRAMENTO, California, November 2, 2011 (ENS) – The California Air Resources Board has adopted a final cap-and-trade regulation covering emissions of the greenhouse gas carbon dioxide, CO2. A key element of the state’s pioneering climate plan, the regulation covers transportation fuels, starting in 2015.

While Congress is not likely to pass a national cap-and-trade market for CO2 anytime soon after the Waxman-Markey bill passed by the House in 2009 failed in the Senate, California is moving ahead on its own.

“Cap-and-trade is another important building block in California’s effort to create a clean and vibrant economy,” said Air Resources Board Chairman Mary 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.”

“When the nation addresses the growing danger of climate change, as I believe it must and will, California’s climate plan will serve as the model for a national program,” predicted Nichols.

In Los Angeles, a Chevy Volt electric car with range extender (Photo courtesy Chevrolet Europe)

The regulation, adopted October 20, sets a statewide limit on sources responsible for 85 percent of California’s greenhouse gas emissions and establishes a price signal needed to drive long-term investment in cleaner fuels and 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.

The regulation will cover 360 businesses representing 600 facilities and is divided into two phases: the first, beginning in 2013, will include all major industrial sources along with electricity utilities; the second, starting 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.

By 2020 the state is expected to reach the equivalent of the 1990-level of greenhouse emissions, as required under Assembly Bill 32, the California Global Warming Solutions Act.

This is a 15 percent reduction compared to the so-called business-as-usual level – what the emissions would be in 2020 without any programs in place.

The AES power plant at Huntington Beach, California is fueled with natural gas and oil. (Photo by Powerplant Maintenance Specialists Inc.)

The Air Resources Board also approved an adaptive management plan to monitor the effect the program has on localized air quality and forests. To ensure a gradual transition, the agency 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 the Air Resources Board will conduct, or buy them on the market. The first auctions of allowances are slated for August and November 2012.

Electric utilities will be given allowances to be sold at auction for the benefit of their ratepayers and to help achieve the goals of AB 32.

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.

The regulation 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.

The cap and trade regulation has been in development for the past three years. ARB staff held dozens of public workshops on every aspect of the cap-and-trade program design, and hundreds of meetings with stakeholders.

Air Resources Board staff also benefited from the analysis of a blue ribbon committee of economic advisers, consultation with world-renowned institutions that specialize in climate issues, and advice from experts with experience from other cap-and-trade programs elsewhere in the world.

The cap-and-trade program joins a suite of other major measures California has implemented, including standards for ultra-clean cars and low-carbon fuels.

The program also complements and supports California’s existing efforts to reduce smog-forming and toxic air pollutants and improve energy efficiency in homes and businesses.

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