California Issues Draft Emissions Trading Rules For 2012 With Most Allowances Given Away

LOS ANGELES--The California Air Resources Board Oct. 29 unveiled draft regulations for a greenhouse gas emissions trading program it hopes to launch in 2012 that would give away most emissions allowances to power plants, cement plants, and other industrial facilities.

If adopted by the agency's governing board at its Dec. 16-17 meeting in Sacramento, the program would be the nation's first multi-sector greenhouse gas emissions cap-and-trade program.

The framework for the cap-and-trade strategy outlined in the document released by CARB for comment is largely consistent with the plan it released nearly a year ago, but this version fills in details regarding emissions allowance distribution and use of offsets that were left unaddressed in the earlier proposal.

CARB's proposed regulations would distribute 90 percent of emissions allowances for free, rather than for sale, to ease the early economic impacts of the trading program. The facilities would have to meet their remaining reduction obligations by either cutting emissions, purchasing allocations through one of the four auctions CARB would hold annually, or with qualified offsets.

Up to 8 percent of a covered entity's total compliance obligations could be met with offsets under the draft regulations. Previously, CARB had suggested that offsets account for only 4 percent of the required reductions.

Program Sets 25,000-Ton Threshold

CARB's trading program would target about 600 major sources of greenhouse gases, those emitting 25,000 tons or more a year, at 360 businesses and government facilities, according to the document.

The program would apply to emissions of carbon dioxide, methane, sulfur hexafluoride, nitrous oxides, hydrofluorocarbons, perfluorocarbons, and nitrogen trifluoride.

Included in the cap-and-trade program are electricity generators and importers and industrial facilities, including cement plants; cogeneration facilities; hydrogen plants; petroleum refiners; manufacturing plants; and wholesalers of gasoline, distillate, propane, and natural gas.

Power generators and importers and industrial facilities would be subject to the first phase of trading in 2012. By 2015, the program would be expanded to address emissions from transportation fuels and the delivery of natural gas and propane.

CARB would not offer transportation fuel and natural gas wholesalers and distributors free allocations or permits when they are folded into the trading program in 2015, agency spokesman Stanley Young told BNA. Those businesses would have to purchase permits, he said.

The proposed regulations would cap emissions in 2012 based on the best estimate of actual emissions for that year. Caps would decline 2 percent annually through 2014 and then drop 3 percent a year through 2020.

The cap-and-trade program is key element of the effort to implement A.B. 32, which requires the state to cut greenhouse gas emissions to 1990 levels by 2020, about 16 percent lower than 2006 levels.

“We have worked closely with all interested parties and stakeholders to make sure that the program provides flexibility to reach our emissions reduction goals while taking into consideration the current economic climate and the need to fully protect California's economy,” CARB Chair Mary D. Nichols said in a written statement.

CARB Estimates Carbon Prices

Industrial sources and power plants would get nearly all of allocations they need at the start of the trading program for free, based on output-based greenhouse gas efficiency “benchmarks,” according to the proposed regulations. Privately owned utilities, however, would have to distribute the value of their allowances to ratepayers.

Some permits would be sold in the first year as well, at about $10 a ton, according to the proposal. The price would increase annually due to inflation plus 5 percent.

CARB estimated prices for allowances would range from $10 to $20 per ton in 2012, increasing to between $15 and $30 a ton in 2020.

The proposed regulations also would allow banking of allowances, establish an allowance reserve, and allow offsets to satisfy 8 percent of their emissions reduction obligations, but only from qualified and verified offset projects.

When CARB's governing board considers the proposal in December, it also will weigh adoption of four initial offset programs related to forestry, urban forestry, manure/methane management, and reducing the existing stock of ozone-depleting substances.

Fully implemented it would account for 85 percent of the state's greenhouse gas emissions.

In the document, CARB points out that the program targets only the largest emitters of the heat-trapping gases linked to climate change, but the agency also acknowledges that it will increase fuel costs for small businesses and consumers. The higher costs can be offset by making businesses and homes more energy efficient, the agency said.

By Carolyn Whetzel  

The proposed CARB regulations and supporting materials are available at

Details and instructions on how to comment on the proposed regulation are available in the Notice of Public Hearing at Comments will be accepted starting Nov. 1, 2010.