After months of CEQA litigation and political lobbying, including an appeal to the California Supreme Court (previous article can be found here), California's landmark climate change bill, the Global Warming Solutions Act of 2006 ("AB 32"), has been modified and appears ready to be implemented starting in January 2012.
As reported in prior blogs (which describe the mechanics of
cap-and-trade in more detail), on July 25, 2011 the California Air
Resources Board ("ARB") issued modifications to the
cap-and-trade program, the primary greenhouse gas ("GHG")
emission reduction strategy for achieving AB 32's mandate of
cutting emissions to 1990 levels by 2020. The public comment period
for these modifications ended August 11, 2011. On September 12,
2011, ARB staff proposed additional modifications addressing public
comments and reflecting as additional staff analysis and
stakeholder engagement. The public comment period for the second
round of modifications ended September 27, 2011.
ARB unanimously adopted the final cap-and-trade regulation in an
eight hour meeting on October 20, 2011. This made California's
cap-and-trade program the nation's first state-administered
cap-and-trade regulation and a landmark moment in the history of
air pollution regulation. This final regulation was filed with the
California Office of Administrative Law prior to the October 28,
2011 deadline for review and approval. Once the final regulations
are approved by the California Office of Administrative Law, the
regulation will go into effect on January 1, 2012.
The final regulation includes changes to the applicability of the
cap-and-trade program relating to imported electricity and
inclusion of a formula, and the resulting allocations, for state
electricity providers. Changes also include modifications, such as
auction purchases and holding limits, that are designed to prevent
market manipulation. Most notably, the modified language in the
final regulation postponed the compliance obligation to January 1,
2013, while maintaining the January 1, 2012 start date for
allocation, auction, and trading. The first allowance auctions will
be held in August and November of 2012. Starting in 2013, auctions
will be scheduled on a quarterly basis.
Beginning in 2013, the start of the first compliance period, the
state's largest emitters will be required to meet the assigned
cap on carbon emissions or buy carbon credits to cover the
difference. The delayed start means that retirement allowances will
not be required for 2012, but the compliance date will have the
same end period as previously written - December 31, 2014. Under
this modification, covered entities will still be required to
retire allowances covering 30% of their 2013 verified emissions by
November 1, 2014. The remainder of allowances for the two year
compliance period will be due November 1, 2015.
The second phase of compliance will begin in 2015 and is estimated
to cover 85% of California's emission sources.
The final vote, which was applauded by former Governor Arnold
Schwarzenegger as a "major milestone for California's
continued leadership in reducing the world's greenhouse
gas," is being closely watched by other states and is expected
to act as a model for future legislation. In fact, California is
currently working closely with six other western states and four
Canadian providences through the Western Climate Initiative to
design a regional program that can deliver GHG emission reductions
within the region at a lower cost than could be realized through a
California-only initiative alone.
Some business and industry leaders criticize this most recent
action as onerous and an incentive for businesses to leave the
state, resulting in lost jobs for California citizens. Again, only
time will tell what the ultimate outcome in this environmental
debate will be. Stay tuned...
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