Carbon cap and trade programs


California cap-and-trade program, launched inis one of a suite of major policies the state is using to lower its greenhouse gas emissions. The cap-and-trade rule applies to large electric power plants, large industrial plants, and fuel distributors e. California has linked its program with similar programs in the Canadian provinces of Ontario and Quebec, meaning that businesses in one jurisdiction can use emission carbon cap and trade programs or offsets issued by one of the others for compliance.

This broadens the number of businesses under the cap, leading to additional economic efficiencies. The cap-and-trade rules first applied to electric power plants and industrial plants that emit 25, tons of carbon dioxide equivalent per year or more. Beginning inthe program was extended to fuel distributors meeting the 25,metric ton threshold.

Emission allowances are distributed by a mix of free allocation and quarterly auctions. The portion of emissions covered by free allowances varies by industry and by how efficient each facility is relative to industry benchmarks.

If carbon cap and trade programs buyers entered the market for California allowances, it could affect prices for California entities through an indirect linkage.

AB 32 sets a statewide carbon limit for while SB 32 sets a statewide limit for AB 32 seeks to slow climate change through a comprehensive program reducing greenhouse gas emissions from virtually all sources statewide. The state anticipates annual auction revenue to rise over time.

A pair of laws established guidelines on how this annual revenue is disbursed. The two laws do not identify specific programs that would benefit from the revenue, but they provide a framework for how the state invests cap-and-trade revenue into local projects. ABwhich Gov. Jerry Brown signed on July 25,further clarifies the priorities for investments as:. Tags Cap and Trade Carbon Pricing. California Cap and Trade.

California Greenhouse Gas Emissions by Sector in The regulation has been amended periodically since then. The legislature authorized an extension of the program through in Phase 1 Electricity generation, including imports Industrial sources Sectors Covered: Phase 2 onward Includes sectors covered in Phase 1, plus: Distributors of petroleum Distributors of natural gas Point of Regulation Electricity generators within California Electricity importers Industrial facility operators Fuel distributors Allowance Allocation Distribution Carbon cap and trade programs Free allocation for electric utilities, industrial facilities and natural gas utilities investor-owned utilities must sell free allowances and redistribute funds to customers Free allocation to utilities declines over time Other allowances must be purchased at carbon cap and trade programs or via trade Allocation Methodology Industry: Based on output and sector-specific emissions intensity benchmark that rewards efficient facilities Electricity: Based on long-term procurement plans Natural gas: Based on sales Auction Quarterly, single round, sealed bid, uniform price Price minimum: Beginning in a hard price ceiling will be set, and an unlimited supply of allowances will be available at this price.

However, regulated entities are subject to holding limits, restricting the maximum number of allowances that an entity may bank at any time. Borrowing Borrowing of allowances from future years is not allowed. Beginning in at least half the offsets used for compliance must come from projects that directly benefit California. Protocols currently exist for: Offset projects may be located anywhere in the U. Strategic Reserve A percentage of allowances is held in a strategic reserve by CARB in three tiers with different prices: The strategic reserve will help constrain compliance costs by adding supply to the market when prices would otherwise be above the tiers.

Compliance Period 3-year compliance carbon cap and trade programs following 2-year Phase 1with a partial surrender obligation due each year. Emissions Reporting and Verification Reporting Covered entities must report annually as required since Registration Covered entities and other participants must register with CARB to participate in allowance auctions. Verification Reported emissions must be verified by a third party. Noncompliance If a deadline is missed or there is a shortfall, four allowances must be surrendered for every metric ton not covered in time.

Trading and Enforcement The regulation expressly prohibits any trading involving a manipulative device, a corner of or an attempt to corner the market, fraud, attempted fraud, or false or inaccurate reports.

Violations of the regulations can result in civil or criminal penalties. The program includes mechanisms to monitor for and prevent market manipulation. Offsets and allowances can be traded across jurisdictions. The linked jurisdictions hold joint auctions together.

Indirect linkages California has a Memorandum of Understanding with the Mexican state of Chiapas and the Brazilian state of Acre to develop sector-based offsets from projects that reduce emissions from deforestation and land degradation REDD. Jerry Brown signed on July 25,further clarifies the priorities for investments as: Includes sectors covered in Phase 1, plus: Distributors of petroleum Distributors of carbon cap and trade programs gas.

Electricity generators within California Electricity importers Industrial facility operators Fuel distributors. Free allocation for electric utilities, industrial facilities and natural gas utilities investor-owned utilities must sell free allowances and redistribute funds to customers Free allocation to utilities declines over time Other allowances must be purchased at auction or via carbon cap and trade programs.

Based on sales. Quarterly, single round, sealed bid, uniform price Price minimum: A participating entity may bank allowances for future use and these allowances will not expire. A percentage of allowances is held in a strategic reserve by CARB in carbon cap and trade programs tiers with different prices: Covered entities and other participants must register with CARB to participate in allowance auctions.

If a deadline carbon cap and trade programs missed or there is a shortfall, four allowances must be surrendered for carbon cap and trade programs metric ton not covered in time. The regulation expressly prohibits any trading involving a manipulative device, a corner of or an attempt to corner the market, fraud, attempted fraud, or false or inaccurate reports. California has a Memorandum of Understanding with the Mexican state of Chiapas and the Brazilian state of Acre to develop sector-based offsets from projects that reduce emissions from deforestation and land degradation Carbon cap and trade programs.