California Releases Preliminary GHG Cap- and-Trade Rules

California’s Air Resources Board (ARB) in late November issued the nation’s first blueprint for a broad-based cap-and-trade program to control greenhouse gases (GHG). If they take effect in 2012 as proposed, the regulations in ARB’s preliminary draft will apply to 605 of the state’s largest stationary GHG emitters, including power plants and industries, as well as electricity imports. Starting in 2015, the regulations will also apply to fuel suppliers and smaller stationary GHG emitters such as homes and commercial businesses.

Essentially, the regulations will set a cap on GHG emissions that will decline each year through 2020 to bring the state’s GHG emissions back to 1990 levels — roughly a decline of about 15% from its current emissions. That goal was set by the state’s Global Warming Solutions Act, which was signed by Gov. Arnold Schwarzenegger in 2006.

Under the regulations, covered entities will receive a declining number of tradable emission credits, a portion of which will be available through an auction. The trading system will allow entities with higher emissions to buy credits from entities that have reduced their emissions. According to ARB, this will effectively set a market-based price on GHG emissions, which encourages companies to invest in ways to reduce their emissions. The program includes the limited use of offsets, but as a nonprescriptive program, it allows each company to find the most cost-effective means of cutting emissions while allowing companies that lack cost-effective approaches to buy emission credits. When fully in place, the program would cover 85% of California’s GHG emissions.

ARB will release proposed amendments to the draft resulting from public hearings this spring and a final draft in September. The state agency said that it would move forward with development of the program even though federal climate change legislation was being debated in Congress. Once a federal program is in place, California — along with states and provinces in regional cap-and-trade programs such as the Western Climate Initiative, the Regional Greenhouse Gas Initiative, and the Midwestern Regional Greenhouse Gas Reduction Accord — would work to transition to the national program, it said.

The rules were developed as a result of a year-long public process involving 21 workshops on cap-and-trade program issues, and it was based on more than two years of collaborative efforts with the partners of the Western Climate Initiative. The draft regulations (PDF) are available for viewing at http://tinyurl.com/ycznzjv.

—Sonal Patel is POWER’s senior writer.