Just days before Californians rejected a ballot measure that
would have suspended the state's landmark climate change law,
the California Air Resources Board ("CARB") issued a
detailed proposal that would create a comprehensive cap-and-trade
program and an environmental emission trading scheme, as part of
the implementation of A.B.32.
CARB's proposal took some observers by surprise. Yes, it calls
for an allowance based system for compliance. Yes, it doubles the
amount of offset credits that can be used for compliance. Yes, it
allows for banking of credits. It emulates the model for emissions
trading programs: Title IV of the 1990 , which created dramatic
emissions reductions at far lower costs than direct
regulation.
The surprise: CARB proposes to allocate 90% of the allowances to
affected sectors. Auctions are a relatively minor aspect of the
proposal. And most remaining compliance obligations can be met by
acquiring offsets, a concept many businesses have cheered because
offsets minimize the cost of compliance. Offsets in the
"voluntary" market are currently selling for less than
$10 per ton and many at less than $5 per ton. CARB's proposal
would specifically authorize the use of Climate Action Reserve
offsets, and also provides a framework for future approval of
additional offset types.
The emission cap is set at a "business as usual" level
(at least for efficient users) and requires no reductions until
2013. At that point, the cap would reduce by 2% a year until 2015
and then 3% a year by 2020. Early reports suggest that there will
still be sales of allowances. But with offsets being allowed for
almost all of the commitment level, the proposal has many cost
containment mechanisms. Among other things, banking of allowances
is allowed in an unlimited fashion and 4% of the allowances will be
held back in the event that the prices become too high.
The cap-and-trade proposal was released for public comment
effective November 1. CARB will consider the proposal at its
December meeting, currently scheduled for December 16 and 17,
2010.
If approved, the cap-and-trade proposal would create both
challenges and opportunities for regulated entities. Companies will
need to decide how to reduce their emissions and/or how to value --
and choose from among -- the various offset options authorized by
CARB. And the proposal also provides an incentive for new
technologies to be developed, both to reduce the cost of carbon
emissions and to develop new technologies capable of producing
recognized offsets.
Future client alerts will focus on various key aspects of the
proposal. SNR Denton features some of the leading experts on
environmental law and climate change regulation, not only in
California, but in the US and globally through our recent
combination. Please contact your SNR Denton lawyer, or any member
of the SNR Denton Energy, Transport and Infrastructure group or the
Public Law and Policy Strategies group to learn more about how we
can help you address the threats, opportunities and incentives
presented by California's cap-and-trade proposal.
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.
