The California Air Resources Board ("CARB") released modified cap-and-trade regulations on July 25, 2011, and an updated Appendix A to the modified regulations on July 27, 2011. CARB intends to move quickly toward implementation of the cap-and-trade program, allowing just 15 days for the acceptance of public comments on the proposed modifications. The deadline for submission of public comments is August 11, 2011.
Prior CARB Endorsement of the Cap-and-Trade Regulations
On December 16, 2010, CARB approved a resolution ordering its
Executive Officer to proceed with finalizing cap-and-trade
regulations for greenhouse gas emissions. CARB's action, along
with the regulations endorsed by CARB, is described in a White
Paper issued by Jones Day entitled "California Adopts
Cap-and-Trade Program for Greenhouse Gas Emissions," available
at
http://www.jonesday.com/newsknowledge/NewsKnowledge.aspx.
The resolution directed staff to consider a number of specifically
identified issues, as well as to make certain modifications to the
regulations and "such other conforming modifications as may be
appropriate." The modified regulations released this week are
the staff's response to the directives in the resolution. As
part of finalizing the regulations, the staff will also be
completing the associated environmental review document. Final
regulations are scheduled to be filed with the California Office of
Administrative Law by October 28, 2011.
The Proposed Modifications
The proposed modifications cover almost all sections of the
regulations. Many of the changes are intended to clarify the
regulations, and others are designed to promote consistency between
the regulations and other related programs, such as the Mandatory
Reporting Regulation at Title 17, California Code of Regulations,
section 95100 et seq. Some of the revisions are intended
to better align the cap-and-trade program with rulemaking efforts
in other Western Climate Initiative jurisdictions to allow for
future linkage between programs.
The proposed modifications add several new sections to replace
sections that were viewed as too lengthy and/or hard to follow,
including a new section 95977.1, addressing requirements for offset
verification services, and section 95990, addressing recognition of
early action offset credits. Certain provisions of section 95921
addressing compliance instrument trading were rewritten to address
violations and confidentiality, and the provisions of section 95983
addressing forestry offset reversals were modified or rewritten
regarding intentional reversals. Section 95985, addressing the
invalidation of ARB offset credits, was also substantially revised.
Many of the proposed modifications are designed to refine the 2010
draft regulations, including section 95914, which adds criteria for
participating in allowance auctions, establishes confidentiality
requirements, and sets allocation purchase limits.
Specific Examples of Proposed Modifications
The following are a few examples of the proposed modifications.
One of the more significant changes would postpone the date when
the first sources subject to the program would be subject to
compliance obligations. (Each covered entity must surrender an
appropriate number of compliance instruments for each year that it
has a compliance obligation.) The regulations trigger compliance
obligations in two phases. Under the 2010 regulations, the first
phase ("first compliance period") was to start on January
1, 2012, and the second phase was scheduled to start on January 1,
2015. The proposed modification extends the date for starting the
first phase by one year, to January 1, 2013. Section 95840.
However, several actions under the modified regulations will
continue to take place in 2012. There will be two allowance
auctions in 2012, one on August 15 and one on November 14.
Beginning in 2013, the auctions will be conducted each calendar
quarter. Section 95910. As explained by CARB, allowance allocations
and trading also will begin in 2012.
The proposed modifications revise the sections that identify the
sources which do not have compliance obligations. Text was added to
specify that emissions from geothermal generating units and
geothermal facilities do not trigger compliance obligations, to
clarify which source categories are subject to reporting but not to
compliance obligations (including a broader description of
qualifying fuel derived from municipal solid waste), and to clarify
which fugitive and process emissions count toward a reporting
threshold but not toward a compliance obligation (adding such
facilities as methane from landfills, coal storage, and storage
tanks at refineries.) Section 95852.2. The proposed modifications
also add provisions requiring emissions from biomass-derived fuels
to be verified under the Mandatory Reporting Regulation or other
specified data statement in order to be exempt from a compliance
obligation, along with requirements applicable to contracts for
biogas and biomethane. Section 95852.1.1.
The modifications rewrite the regulatory text, establishing limits
on the maximum number of greenhouse gas allowances that may be held
at any one point in time. Section 95920. Among the various
modifications is the creation of a new type of holding account,
called an "Exchange Holding Account," that will hold
allowances retained by exchange clearing services. Section 95831.
(Some entities may transfer compliance instruments to clearing
entities on a temporary basis while the transaction is being
completed. Upon completion, the clearing entity transfers the
compliance instruments to the designated account of the entity
receiving the allowances.) Creating this type of account allows
CARB to exempt a clearing entity from the allowance holding
limit.
The proposed modifications introduce the concept of
"Voluntary Renewable Electricity," defined as electricity
produced by an entity which generates renewable electricity (energy
derived from solar, wind, geothermal, tidal power, and other
similar sources) and which applies for "allowance
retirement." Sections 95802(279) and 95802(280). Once the
emission cap is set, Voluntary Renewable Electricity can reduce
greenhouse gas emissions only if it is tied to a reduction in the
total amount of allowances. The modifications establish a Voluntary
Renewable Electricity Reserve Account to hold allowances that may
be retired in recognition of Voluntary Renewable Electricity. The
account will hold 0.5 percent of the allowances in
2013–2014 and 0.25 percent in 2015–2020.
Section 95870. In this way, the modifications provide an incentive
to support increased voluntary investment in renewable
resources.
Comments
The cap-and-trade regulations, with the proposed modifications highlighted, can be found at http://www.arb.ca.gov/regact/2010/capandtrade10/capandtrade10.htm. The modifications are open for public comment until August 11, 2011. Comments may be submitted by mail to Clerk of the Board, Air Resources Board, 1001 I Street, Sacramento, California 95814, or electronically by going to the CARB homepage (http://www.arb.ca.gov/homepage.htm) and clicking on "Send Us Your Comments."
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