Yesterday evening, after more than ten hours of testimony and debate (including an impromptu appearance by Governor Schwarzenegger), the California Air Resources Board ("CARB") approved a cap-and-trade program for greenhouse gas (GHG) emissions. The new program covers sources accounting for more than 80% of California's GHG emissions, and is the largest program of its type in the United States.
The program will be implemented in phases, beginning in 2012. The first phase of the program (2012 to 2015) covers electricity generation and industrial sources emitting more than 25,000 metric tons of carbon dioxide-equivalent GHGs (MTCO2e) per year. In 2015, the program will be significantly expanded to cover emissions from transportation fuels, natural gas, propane, and other fossil fuels.
Carbon allowances will be distributed to all covered entities. Industrial sources will receive allowances based on a complex formula involving existing production, vulnerability to trade pressure, and certain energy efficiency benchmarks. Industrial sources can either use their allowances for compliance purposes (specifically, by surrendering to CARB one allowance for each ton of CO2e emitted) or sell their allowances to other parties. Utilities will be required to auction their allowances and to use the auction proceeds for the benefit of their ratepayers.
The cap-and-trade program also allows covered sources to use offset credits for compliance purposes. Yesterday's approval explicitly authorized the use of certain types of offsets which meet the Climate Action Reserve's protocols for forestry, livestock, and ozone-depleting substances. But the agency is likely to consider (and approve) additional offset protocols in 2011.
CARB's approval of cap-and-trade is final. But the agency still has quite a bit of work to do before the approved program can be implemented. In the coming months, CARB will have to address a number of thorny -- and critically important -- issues, including the development of a methodology for distributing allowances to utilities, finalizing energy efficiency benchmarks for certain categories of industrial sources, identifying and approving additional types of offset protocols, and determining whether and how to link California's new program to cap-and-trade programs currently under development in other regions of the United States and Canada.
SNR Denton features some of the leading experts on environmental law and climate change regulation, not only in California but also elsewhere in North America and globally. We can help you identify and address the threats, opportunities, and incentives presented by California's new cap-and-trade program. To learn more, please contact any of the individuals listed above or any member of the SNR Denton team.
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