On November 14, California's Air Resources Board (CARB)
will conduct the first greenhouse gas (GHG) allowance auction as
part of the state's cap-and-trade program. Earlier
this month, CARB issued two notices, one identifying the deadlines between now and
November 14 and the other explaining financial requirements for
participation. Compliance obligations for the electricity
industry and some industrial facilities start in 2013, and CARB
estimates that sources responsible for 85 percent of the
state's current emissions will ultimately be covered by the
program. Although this new market is the first of its kind in
the United States, given the declining GHG emissions in California
over the past few years, the program's goals are relatively
Authorized by the Global Warming Solutions Act of 2006,
California's cap-and-trade program is intended to reduce
the state's GHG emissions in 2020 to 1990 levels. Its
first phase covers facilities generating electricity, importers of
electricity, and large industrial sources, such as facilities used
for fossil fuel extraction or refining, mining and
manufacturing. Initially, only sources that emit more than
25,000 tons of CO2 equivalents per year are required to
participate. In 2013, approximately 90 percent of allowances
will be distributed for free to electric generators and operators
of industrial facilities based on their most recent
emissions. In 2015, distributors of petroleum, natural gas and
other fuels will also be required to hold GHG allowances, as will
many stationary sources that emit less than 25,000 tons of
CO2 per year. In addition to covered entities,
financial institutions and other intermediaries are allowed to
participate in auctions and trading.
In 2007, CARB set the 1990 baseline (and 2020 goal) at
427 million metric tons (MMT) per year and estimated that the 2020
business-as-usual forecast would be approximately 600
MMT. With that estimate, the 2020 goal represented a decline
of about 30 percent. While GHG emissions increased slightly
from 2000 to 2007, they dropped sharply in 2009, roughly at the
same rate as national GHG emissions fell in the wake of the
recession. As a result, in 2010, CARB reduced its 2020
business-as-usual scenario from 600 to 508 MMT. With the new
estimate, the 2020 goal represented a decline of 15 percent
compared to the business-as-usual scenario. This updated
estimate, however, did not account for California's
increase in its renewable portfolio standard target from 20 percent
by 2010 to 33 percent by 2020, or for new state and national
vehicle efficiency standards. CARB estimates that these measure alone would
more than account for the difference between today's actual
emissions and the 2020 goal.
California has long been a pioneer in energy regulation. In
1996, for example, the state legislature restructured its
electricity industry, becoming the first in the country to rely on
market-bidding to procure power and services for its electric
grid. Two years after the markets opened, prices soared, FERC
declared the market structure to be seriously flawed, and
California scrapped the original market design and tried
again. Today, it is considered a model market for policy
California may see this initial cap and trade program as an
experiment and a stepping stone towards meeting the far more
ambitious goal of reducing emissions to 80 percent below 1990
levels by 2050, a goal that was set in an executive order issued by
Governor Schwarzenegger. It remains to be seen how much this
cap-and-trade program will cost (or how much revenue it will
generate for the state, depending on your perspective), or how
effective the market design will be, but it appears that it will do
little to reduce GHG emissions.
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