Last week the California Air Resources Board (CARB) held a public workshop providing an implementation timeline and identifying rulemaking issues for the Assembly Bill 32 (AB 32) Scoping Plan, approved in December 2008.   AB 32, the California Global Warming Solutions Act, sets a target to reduce statewide emissions to 1990 levels by 2020.  The Scoping Plan recommended a mix of strategies to achieve emissions reductions, in particular a greenhouse gas cap-and-trade, as well as other market mechanisms, new energy regulations, voluntary measures, energy efficiency measures, and fees. CARB’s cap-and-trade rulemaking will determine all elements of the program design, including the scope and threshold of source eligibility, the level of emissions cap, the manner of allowance distribution, offsets, reporting requirements, and enforcement.  CARB will seek to establish transparent emissions trading rules, including possible restrictions on market participation.  Regulations for the cap-and-trade will be adopted by November 2010 and the cap-and-trade will begin on January 1, 2012 for the electricity generation sector and large industrial sources.  Additional sectors, such as commercial and residential natural gas use and transportation fuels, will be phased into the system in 2015.

CARB intends that its rulemaking harmonize as much as possible with that of Western Climate Initiative (WCI) member jurisdictions.   Under the Scoping Plan, CARB has committed to certain elements in the design of the cap-and-trade: the program will have a three-year compliance period, minimum 10 percent auction of emissions, and will limit offsets to no more than 49 percent.  However, CARB will participate with the WCI to ensure that critical elements of the rulemaking are harmonized between the partner jurisdictions. CARB anticipates that WCI members will share a standard auction design, coordinate auctions, and have consistent rulemaking provisions on offset and reporting protocols.  It is CARB’s position that participating in a regional program will reduce emissions leakage, support jobs retention, and give the WCI member states increased leverage on framing federal climate policy.  Adopting standard WCI elements will help ensure that emission allowances have comparable value across jurisdictions.

In crafting the California cap-and trade regulations, CARB will use a formal rulemaking process with extensive opportunity for public input in the regulatory process.  CARB will invite participation by US EPA and other federal lead agencies to participate in the rulemaking with the intention that CARB’s discussions of and recommendations on policy issues will influence national legislation and regulatory development.

The workshop established the principles that will guide the cap-and-trade regulation.  Specifically, CARB will aim to adopt cap-and-trade:

• Minimizing costs and maximizing benefits
• Minimizing leakage and administrative burden
• Complementing existing state air programs
• Considering direct, indirect, and cumulative emissions and localized impacts
• Not disproportionately impacting low-income communities

As discussed above, the cap-and-trade is only one element of the Scoping Plan.  Full implementation will require several cross cutting issues, such as transportation fuel standards, and energy policy having impact on cap-and-trade program development.   While CARB will have primary jurisdiction over developing the cap-and-trade regulations,  CARB will coordinate with other state agencies, including the California Environmental Protection Agency, the California Energy Commission, the California Public Utilities Commission, to ensure state-level consistency on these issues.

In the near term, CARB intends to have monthly public meetings to get input on issue papers and draft rule provisions as well as quarterly meetings on rule development progress and impact analysis.  Preliminary draft rule provisions and white papers will begin to be released in November of this year.

For further information about this topic, please contact Akin Gump.