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        • CA Regulators Release Draft Rules for Carbon Program

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        CA Regulators Release Draft Rules for Carbon Program

        10.29.10

        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.

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