Highlights from the Preliminary Draft Regulation for a California Cap-And-Trade program, Part I

On November 24, 2009, California released a preliminary draft regulation for a cap-and-trade program, in accordance with the California Global Warming Solutions Act of 2006 (AB 32) for public review and comment. At 132 pages, it was a doozy. Most likely in an effort to minimize comments, the deadline for comments on the initial draft is January 11, 2010. However, if you are really interested, a workshop to discuss the proposal is being held on December 14, 2009.

The goal for the cap-and-trade program, which is being designed to be consistent with the Western Climate Initiative, is to establish a cap covering at least 85% of California’s GHG emissions and allow trading to ensure cost-effective emission reductions. The goal is to start the program in 2012 with approximately 600 of the state’s largest GHG-emitting stationary sources (including industrial sources above 25,000 MTCO2e) and electricity imports and expand the program, which would include industrial sources under 25,000 MTCO2e and transportation fuels, until it covers up to 90% of the state’s GHG emissions.

The current design is slanting towards three compliance periods — 2012 to 2014, 2015 to 2017, and 2018 to 2020 — and sets a cap for each. In each compliance period, a covered entity would be expected to surrender a portion of their current emissions until the 2020 target, which is to reduce GHG emission to 1990 levels, is hit.

When passed, the act, which is currently 65 pages in length and broken into 15 sub-articles, will become sub-chapter 10 climate change, article 5, sections 95800 to 96550, title 17, of the California Code of Regulations. Here are some of the important points in sub-articles 3 to 7.

SubArticle 3: Applicability

The article applies to the following greenhouse gases:






PFCs, and


The article applies to industrial entities with recognized GHG producing processes, electricity deliverers, transportation fuel deliverers, natural gas deliverers, and deliverers of natural gas liquids.

SubArticle 4: Compliance Instruments

The Executive Officer will create GHG allowances and offset credits. Each compliance instrument issues represents a limited authorization to emit up to one metric tone of CO2e.

SubArticle 5: Registration and Tracking System

Any entity covered as of January 1, 2012 must register by March 31, 2012. Any entity that becomes a covered entity must register within 90 days of becoming covered. An entity must maintain a current and valid registration in order to receive compliance instruments (allowances and offset credits).

SubArticle 6: California Greenhouse Gas Allowance Budgets

A base budget of allowances will be created for each fiscal year. These allowances may be adjusted to account for voluntary investment in renewable sources of electricity generation.

SubArticle 7: Surrender Requirements for Covered Entities

The program will require all annual emissions reports to be verified by an independent accredited verifier. It will also require the relevant records to be maintained for at least 10 years.

In part II, we’ll cover sub-articles 8 through 15 and summarize the draft.