Legal Alerts

Regulations Would Allow Certain Industries to Swap or Bank Emission Allowances

The California Air Resources Board (CARB) has released its draft Cap and Trade regulations for public review, with the comment period opening today. Cap and Trade is a key component of the Global Warming Solutions Act, better known as AB 32, and is aimed at large emitters of greenhouse gases, such as oil refineries and cement factories, that contribute to climate change. In all, the program will cover 85 percent of the greenhouse gases emitted in the state.

Assuming that Proposition 23 does not pass in Tuesday’s election, the Cap and Trade regulations would: Specify greenhouse gas emissions limits for certain regulated industries, provide emissions allowances to those regulated entities, and allow those that emit below the cap to bank or trade their allowances.  

Key features of the program include:

• Emissions limits will be in place beginning in 2012, and will decline annually over time.
• Covered entities will include large emitters of greenhouse gases, such as the electricity industry, including imports, and other large stationary sources that emit more than 25,000 metric tons of carbon dioxide equivalent per year, including refineries, cement producers, oil and gas producers, glass manufacturers, and food processors. Fuel distributers will be subject to the regulations beginning in 2015.
• Covered entities can comply with the cap by purchasing allowances (i.e., permits to emit greenhouse gases) at an auction or from other allowance holders. CARB staff anticipates initial distribution of a combination of free allowances and auctioned allowances, though the final details will be worked out following public comment.
• Covered entities can also use offsets to satisfy up to eight percent of their compliance obligation. Four separate offset protocols are being proposed for consideration along with the regulation, including U.S. Ozone Depleting Substances projects, Livestock Manure (Digester) projects, Urban Forest projects, and U.S. Forest projects.
• In addition to large emitters, other entities that may choose to participate in the program include the general public, investment banks, land trusts and private citizen groups that would be allowed to hold allowances and offsets, and would be subject to registration and reporting requirements. 
• The program is designed to link with other states and Canadian provinces participating in the Western Climate Initiative, though linkage to those programs will not be immediate.

The legal and technical justification for those regulations is described in CARB’s Initial Statement of Reasons. The comment period on the regulations continues through Dec.15. A board hearing on this item is scheduled for Dec. 16. 

For  further  information  regarding  the  proposed  Cap  and  Trade  regulations,  or  for assistance   participating   in  CARB's  rulemaking  process,   please  contact Christopher Calfee or any attorney in the Environmental Law and Natural Resources practice group.

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