On October 25, 2013, the California Air Resources Board (CARB) held a public hearing to adopt numerous amendments to its AB 32 Cap-and-Trade program, which currently regulates 350+ sources covering 85% of California's total GHG emissions. Cap-and-Trade is a market incentive regulatory program that applies a declining aggregate cap on GHG emissions, and allows regulated facilities to comply through the use of tradable instruments, including carbon allowances and project offsets. Regulated facilities buy carbon allowances directly from the state through quarterly auctions that are hosted by CARB. Over the past year, CARB has generated in excess of $1 billion of revenues from its quarterly carbon auctions with settlement prices as high as $14 per metric ton. Current market prices for California carbon allowances are approximately $12 per metric ton. To address several ongoing concerns, the recent regulatory amendments for Cap-and-Trade include the following key provisions:

  • Resource Shuffling - Additional guidance for the definition of resource shuffling, including identified "safe harbors" or activities that covered entities may engage in that ARB does not consider resource shuffling;
  • Combined Heat and Power (CHP) - A limited exemption for qualifying small CHP and district heating facilities that would apply for the first compliance period;
  • Leakage Determinations - Proposed new and modified leakage risk determinations, plus proposals to increase the industrial assistance factor to 100% throughout the second compliance period for those sectors defined medium- and low-leakage risk;
  • Cost Containment - Provisions to ensure that carbon allowance prices will not exceed highest tier of the Allowance Price Containment Reserve, which is approximately $50 per metric ton; and
  • Waste-to-Energy Facilities - ARB developed regulatory amendments to exempt facilities combusting municipal solid wastes for the first compliance period.   

In addition to the above amendments, CARB recently released a discussion draft of its 2013 AB 32 Scoping Plan, which is the 5-year update to the agency's original 2008 Scoping Plan. The proposed 2013 AB 32 Scoping Plan is a forward looking document through 2050, which outlines additional statewide greenhouse gas policies for all major California economic sectors and the general objective of reducing statewide GHG emissions below 1990 levels by 80%. The 2013 Scoping Plan provides for numerous greenhouse gas initiatives, including, Zero Emission Vehicles, Low Carbon Fuels, sustainable transportation, local planning, water conservation, forestry and others. In addition, it appears that CARB intends to continue Cap-and-Trade beyond calendar year 2020, which is not provided under existing regulations. CARB is expected to consider approval of the 2013 AB 32 Scoping Plan in Spring 2014.