On November 24, 2009, the California Air Resources Board (ARB) released a preliminary draft regulation (PDR) for its planned cap-and-trade program covering greenhouse gas (GHG) emissions. The cap-and-trade is the cornerstone of ARB’s efforts to reduce GHG emissions to 1990 levels by 2020, as required by the Global Warming Solutions Act of 2006 (AB 32). When fully implemented, the program described in the PDR would cover approximately 85 percent of California’s GHG emissions. Several portions of the PDR are incomplete, most notably the allowance allocation provisions. ARB is awaiting the recommendations of the Economic and Allocation Advisory Committee before proposing an allocation methodology.

The following are some of the key design elements of the program:

• By 2020, the program would reduce emissions from covered sectors by approximately 15 percent below 2006 levels, based on the draft allowance budgets.
• The threshold for coverage is 25,000 metric tons of CO2 equivalents. The program covers the six Kyoto Protocol gases and nitrogen trifluoride (NF3).
• The program is scheduled to launch in 2012 and will initially cover electricity generation, including imported electricity, and large industrial sources. The program is divided into three-year compliance periods.
• In 2015, at the start of the second compliance period, the program will expand to cover emissions from combustion of transportation fuels, as well as residential, commercial, and industrial fuels that fall below the 25,000 ton threshold. Emissions from these fuels will be regulated upstream.
• Compliance entities may meet approximately 4 percent of their obligations using offset credits.

Included with the PDR is a timeline for the cap-and-trade rulemaking process, which calls for regulations to be adopted in the Fall of 2010.

To view ARB’s preliminary draft regulations for a statewide cap-and-trade program, click here.

Click here to view the MJB&A summary of the PDR.