The California Air Resources Board (ARB) released late last night proposed regulation to implement the California Cap and Trade program. The document will be open to a 45-day public comment period prior to the Board's final consideration of the regulations on December 16, 2010. The proposed rules can be accessed by clicking here.

We will be sending a detailed overview in the next few days. In the meantime, below you will find a summary of some key points:

• Auction: covered entities, opt-in covered entities, voluntarily associated entities may participate.
  • First auction in February 2012, and then quarterly for the remainder of the program.
  • Auctions will include ¼ of annual budgeted allowances and future vintage years as well
  • Any party with a limited use holding account may offer allowances in the auction
  • Minimum 1,000 units on auction
  • $10 USD per ton floor + 5% escalator + inflation per year
  • Auctions conducted by ARB or third party.
• Allowance Reserve:  three weeks after the regular quarterly auctions, ARB will offer Reserve allowances for sale to covered entities at fixed prices.
  • 1% of Phase I (2012-2014) allowances
  • 4% of Phase II (2015-2017) allowances
  • 7% of Phase III (2018-2020) allowances
  • Equal to approximately 5% of the total allowances in the program for 2012-2020
  • The reserve will be filled at the beginning of the program with a portion from each year, with ARB unsold allowances and with allowances surrendered to comply with excess emissions provisions
  • Allowances from Reserve become available based on the following price triggers:
    • 1/3 @ $40 USD per ton
    • 1/3 @ $45 USD per ton
    • 1/3 @ $50 USD per ton
    • Prices will escalate 5%+ cost of inflation each year to $60; $67and $75 per ton by 2020.
    • There will be holding limits.
• Unlimited banking for both offsets and allowances
• 8% offsets limit; the limit is 232M offsets over the life of the program.  
• Cap
  • 2012 = 165.8MMtco2e
  • 2014 = 159.7 MMtco2e
  • 2015 = 394.5MMtco2e
  • 2020 = 334.2 MMtco2e
• Allocation
  • Utilities will receive roughly 100% free allocation (89 million allowances)
  • IOUs – required to sell allowances in the double sided auction
  • POUs – option to put allowances in their compliance account (commit them to compliance use only) or sell in the auction
  • Generators – no allocation
  • Industrial Facilities – 100% free allocation in Phase I

If you have any questions or interest in market conditions or would like a regulatory update, please contact our U.S. Carbon Desk at:  +1 415.963.9137 or +1 914.323.0265.