California’s new cap and trade system

Posted on January 8, 2011 by

On Dec 2010, California Global Warming Solutions Act of 2006 sets the cap and trade system in the state first time. It is designed to achieve mandate to reduce California’s GHG emissions to 1990 levels by 2020.

Working structure

Sources responsible for approximately 85% of the state’s total GHG emissions such as power plants, large industrial units, etc. would have fixed limit on GHG emission.  Just like EU cap and trade system, companies will receive allowances up to certain emission level. Those who have crossed permissible emission limit and amount of allowances need to purchase allowances through the platform of auctions. Similarly those who have reduced their emissions below the threshold limit can sell their allowances.  By 2020, 2.7 billion allowances on $15 to $60 per metric ton of CO2 are projected in the market.

Salient features of California’s Cap and Trade Program

  • Covered entities such as industrial plants, electric utilities and fuel suppliers, etc.
  • A compliance instruments involve Compliance obligations, Allowances and offset credits.
  • Three-year compliance periods 2012-2014, 2015-2017 and 2018-2020. Covered entities must surrender a portion of compliance instruments annually, with the remainder due after the end of the three-year compliance period.
  • Compliance period regulations will apply to a selected group of covered entities in phased manner.
  • Market mechanisms will operate through Trading and Auctions
  • Linkages between cap and trade program with partners in other Western Climate Initiative (WCI) jurisdictions.