California has begun the process of distributing and auctioning greenhouse gas emission allowances under its " cap and trade" program. Starting on January 1, 2013, sources subject to the program must have acquired allowances or other compliance instruments (such as offsets) equal to their annual greenhouse gas emissions.
Earlier this summer, the California Air Resources Board ("CARB") introduced its Compliance Instrument Tracking System Service, known as CITSS, which is used to establish accounts to record the holding, transfer, and retiring of compliance instruments for each entity that participates in the program.
The first phase of CITSS was released in July 2012. It enabled participants to register as users of CITSS and to apply for compliance instrument accounts. The second phase was introduced in October 2012 and adds features to manage the movement of compliance instruments into and out of the various accounts.
In addition, CARB has established an auction process to sell
emission allowances. CARB held a practice auction on August 30,
2012 to test the auction mechanics and its interface with CITSS. A
total of 112 entities bid during the mock auction, and 1,947 bids
were submitted.
To participate in the cap and trade program, a regulated entity
must have a CITSS account. To establish the account, individual
representatives of participants (such as individuals representing
sources subject to the program) first must provide requested
information to CARB and receive a CITSS User ID. User IDs are
issued only to natural persons, not to entities. Approval as a
CITSS user and an active User ID enable the individual to apply for
CITSS accounts on behalf of the entity that he or she represents.
The creation of an account in CITSS requires the completion of an
electronic application in CITSS, followed by mailing required
information and attestations to CARB. It takes about 10 working
days to obtain a CITSS account.
Under Section 95912 of the cap and trade regulations, an entity
that intends to participate in an auction must submit a
registration application at least 30 days in advance. The
application confirms an intention to bid, allows verification of
the identity of the representative and the entity he or she
represents, and enables the submission of bid guarantee
information. Auction applications for the upcoming November 14
auction were due on October 15. Auctions will be held quarterly
each year. Entities that did not meet the deadlines associated with
the November 14 auction can begin the process for the next auction,
which will take place in February 2013.
The distribution and auction of allowances, each of which equals
one metric ton of greenhouse gas emissions, will take place in
November 2012. On November 1, CARB distributed free allowances into
the CITSS accounts of the entities identified in section 95870 of
the cap and trade regulations. CARB will hold its first allowance
auction on November 14. The auction will take place from 10:00 a.m.
until 1:00 p.m. Pacific Time. The minimum number of allowances
available for sale during the auction is 21,804,539 in 2013 and
39,450,000 in 2015. The reserve price is $10 for one allowance for
both 2013 and 2015 vintages. Bids must be submitted in lots of
1,000 allowances. Bids can be revised or withdrawn during the
three-hour bidding window, but once the window closes, no further
changes to bids are permitted.
Section 95912 of the cap and trade regulations requires that those
bidding at an auction must submit financial guarantee instruments
consisting of cash, an irrevocable letter of credit, a bond, or a
combination of the three. The amount of the guarantee must be
greater than or equal to the sum of the value of the bids submitted
by the auction participant. Bid guarantees for the November 14
auction were to be submitted by November 2. There are also limits
on the number of allowances an entity or group of affiliated
entities may purchase from the allowances sold at the auction, as
well as holding limits, which are the maximum number of allowances
that may be held by an entity or group of entities with a direct
corporate association.
The results of the November 14 auction will be posted on the CARB
web site. The public report will include (among other information)
the number of allowances that were available and sold at the
auction, a list of qualified and successful bidders, and the
settlement price of an allowance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.