Posted by: Steven M. Taber | November 24, 2009

California Air Resources Board Issues Its Preliminary Draft Cap-And-Trade Regulations

The California Air Resources Board (CARB) has released the Preliminary Draft Cap-And-Trade Regulation and announced a December 14, 2009 Public meeting to discuss the Preliminary Draft Regulation.

In December 2008, CARB adopted the AB 32 Scoping Plan. The Plan incorporates a range of measures to reduce greenhouse gas (GHG) emissions in California, including the creation of a cap-and-trade program. As proposed, the California cap-and-trade program would include a stringent declining emissions cap. Emissions trading and the limited use of offsets would provide flexibility for covered entities to comply. If adopted, the cap-and-trade program would allow trading to ensure cost-effective emissions reductions and cover 85 percent of California’s GHG emissions.

CARB has issued the PDR in the hope to garner public comment and support.  To further its effort, CARB has scheduled a public meeting on Monday, December 14, 2009, from 1:00 pm to 5:00 pm at the Byron Sher Auditorium, 2nd Floor, at Cal/EPA Headquarters Building, 1001 I Street, Sacramento, California 95814.  In addition, CARB has inserted narrative into the PDR to highlight certain issues on which it is  specifically seeking comment.  For example, Section 95820 discusses “Covered Entities” the PDR “provides background on why the proposed covered entities were selected.” Along with the PDR, CARB issued an Excel spreadsheet entitled “Example Base Allowance Budgets for the California Cap-and-Trade Program” to provide example cap numbers.

There are five fundamental parts to the PDR:

  1. The Cap. The cap on emissions is set for each compliance period, first of which will begin January 1, 2012.  CARB is proposing to have three year compliance periods, with the possibility of staggering the phase-in of the program.
  2. Allowances.  Permits to emit GHG are “allowances.”  Every year the cap would decline and thus, the number od allwances issued would decline. At the end of a compliance period each covered entity would surrender allowances and any needed offsets that would equal its total GHG emissions during the compliance period.  Entities may do the following with their allowances: (1) surrender to to comply; (2) bank them for for future use; (3) trade them; (4) ask CARB to retire them.
  3. Banking. Refers to the ability to carry-over unused allowances or offsets from one compliance period to another.  Provides incentive for covered entities to make early reductions.
  4. Offsets.  Covered entities could buy offset credits in lieu of buying allowances or reducing their emissions on-site.  Offsets are tradeable credits that represent GHG emissions reductions that are made in areas or sectors not covered by the cap-and-trade program.
  5. Linkage to Other Greenhouse Gas Emissions Trading and Offset Crediting Systems.  The PDR proposes to link its cap-and-trade program to other trading systems.

At least initially, the program will be limited to large sources that emit 25,00 metric tons or more of GHG a year.  The list of covered entities proposed by CARB contains the usual suspects:  Electricity deliverers, transportation fuel deliverers, and facilities with the following operations or processes.

  • Stationary combustion;
  • Cement manufacturing;
  • Cogeneration;
  • Petroleum refining;
  • Hydrogen production;
  • Aluminum production;
  • Facility operators calcining carbonates;
  • CO2 supplier or transfer recipient;
  • Electricity generation;
  • Glass production;
  • Iron and steel production;
  • Lime production;
  • Natural gas transmission and distribution;
  • Nitric acid production;
  • Oil extraction field operation;
  • Gas extraction field operation;
  • Production of industrial gases;
  • Pulp and paper production; and
  • Soda ash production.

CARB states in its Notice that “while staff has specifically highlighted a number of areas for public comment, we welcome and will consider comments on all portions of the draft for the Spring 2010
proposed draft regulation.”  Comments are due no later than January 11, 2010 and can be submitted at:

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