California Air Resources Board June 28, 2012 Proposed Amendments to the Cap-and-Trade Regulation California Air Resources Board

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  • California Air Resources BoardJune 28, 2012

    Proposed Amendments to the Cap-and-Trade RegulationCalifornia Air Resources Board

    California Air Resources Board

  • Presentation OutlineCap-and-Trade Program UpdateStatus of Implementation for key elements Proposed Amendments to the Cap-and-Trade RegulationStaff RecommendationCalifornia Air Resources Board*

    California Air Resources Board

  • BackgroundAB 32 requires ARB to achieve a target greenhouse gas emissions level in 2020 equivalent to the 1990 emissionsScoping Plan includes a suite of measures to achieve 2020 targetCap-and-Trade is key element of Scoping Plan Declining cap on emissions ensures that California meets the AB 32 targetCreates an economy-wide carbon price that drives investment in clean and efficient technologiesCalifornia Air Resources Board*

    California Air Resources Board

  • Cap-and-Trade Rule Development ProcessThree year development and consultation processDozens of meetings and workshops Thousands of public commentsDecember 2010 - Board endorsed the proposed regulation, with modificationsOctober 2011 Board adopted Final Regulation OrderDevelopment of Program Improvement and Linkage RegulationsTwo workshops in February and AprilExtensive consultations with stakeholders and WCI jurisdictions

    California Air Resources Board*

    California Air Resources Board

  • Cap-and-Trade ImplementationSystems DevelopmentRegistration ToolRegistration and account application available in JulyTesting conducted with stakeholders in AprilTraining will be available in July before registrationHelp Desk contact on ARB web siteAuction PlatformTesting: Practice auction in late AugustAuction Notice: September 17Auction: November 14 California allowances only

    California Air Resources Board*

    California Air Resources Board

  • Cap-and-Trade ImplementationProgram MonitoringMarket Simulation GroupWill conduct simulations to stress test the regulationMet with stakeholders in June to identify concernsMarket Surveillance Committee Will provide independent analysis and advice to ARBWill meet with stakeholders to address their concernsMarket MonitorCoordinating with contractorsReviewed proposed amendmentsCalifornia Air Resources Board*

    California Air Resources Board

  • Cap-and-Trade ImplementationOffset ProgramFirst session of registry and offset verifier training completed this weekTwo approved offset project registry applicantsAdditional offset verifier training this summer and fallInitiate public process for potential development of two compliance offset protocols:Rice cultivationDestruction of fugitive coal mine methaneCalifornia Air Resources Board*

    California Air Resources Board

  • Update on Board Direction from Resolution 11-32Electricity deliverersWorkshop May 4Market Simulations GroupPublic meeting June 7Leakage risk analysisDeveloping contract with UCBenchmark developmentContract with Ecofys

    California Air Resources Board*

    California Air Resources Board

  • Update on Board Direction from Resolution 11-32Specific issuesHolding limitsWorking with Market Simulations Group and Market Surveillance Committee to evaluateWater agencies and public universitiesActive discussions, evaluating potential use of proceeds to support reduction activitiesLegacy contractsActive discussions with counterparties. Planning public workshop in the FallElectrical distribution utility allocationWorking with CPUC to ensure equitable ratepayer benefits while maintaining appropriate incentives to reduce emissions

    California Air Resources Board*

    California Air Resources Board

  • Proposed Regulatory Amendments

    Two sets of proposed amendments will be discussed:

    First set of proposed amendments focus on program implementation and security (non-linkage amendments)Second set of proposed amendments focus on linkage (i.e., allowing the interchange of compliance instruments between the California and Quebec cap-and-trade programs)California Air Resources Board*

    California Air Resources Board

  • Proposed AmendmentsGeneral ImplementationChange to Auction ScheduleFirst auction November 14, 2012Covered Entities Requested Account SimplificationConsolidate accounts for entities with direct corporate associationHolding and purchase limits applied at the consolidated account levelFlexibility to opt-out

    California Air Resources Board*

    California Air Resources Board

  • Proposed Amendments to Increase Registry IntegrityRegistration limited to entities and individuals in the United StatesExpanded documentation requirements weigh know-your-customer effectiveness versus collection of personal information Local service agent for entities not located in CaliforniaIndividuals with criminal backgrounds excluded from registering onto the tracking system 5 year look back

    California Air Resources Board*

    California Air Resources Board

  • Proposed Amendmentsto Implement TransfersPush-push-pull model to mitigate against theft or other unauthorized transfer Two account representatives to initiate a transfer of compliance instrumentsOne account representative for destination account confirms transferClarification of deficiencies and information requirements for transfers

    California Air Resources Board*

    California Air Resources Board

  • Proposed AmendmentsMarket Integrity IssuesRemoval of Beneficial Holdings language to reduce oversight complexity40% purchase limit for utilitiesPreviously exemptProcess to adjust exemptions to the holding limit if significant increases in emissionsGives flexibility to emitters with new facilities or fluctuating emissionsNeeds Executive Officer review and approval

    California Air Resources Board*

    California Air Resources Board

  • Proposed AmendmentsAuction MechanicsAdditional detail on auction mechanicsThree-hour bidding windowProcessing order for different bid guarantee typesProcess for tiebreaksOne current vintage and one future vintage auction each quarterSimilar financial mechanics for Price Containment Reserve Sale for consistency between sales

    California Air Resources Board*

    California Air Resources Board

  • Proposed AmendmentsLinkageA broader program increases market liquidity and offers more opportunities for emission reductionsCreate joint market program between California and QuebecAllow California entities to use Quebec issued allowances and offsets for compliance and Quebec entities to use California issued allowances and offset for complianceOnce programs are joined, full fungibility of all issued allowances and compliance offsets issued by each jurisdictionBoard notification and public review, at least annually, and prior to significant changes in linked programCalifornia Air Resources Board*

    California Air Resources Board

  • Quebec Program SummaryBill 42 Requires Quebec to address climate changeWestern Climate Initiative Partner5 years of coordination between WCI partners2020 greenhouse gas target is 20% below 1990 levels (program is more stringent that AB 32)Existing mandatory reporting and cap-and-trade regulationsRecently released draft amendments to harmonize with Californias mandatory reporting and cap-and-trade regulations and facilitate linkageFormal adoption of draft amendments this September

    California Air Resources Board*

    California Air Resources Board

  • Quebec ProgramMandatory Reporting Similar scope for reporting sectors and thresholds for leakage monitoring and inclusion in cap-and-tradeReporting methods consistent with Californias reporting methodsRequirements for third-party verificationDraft amendments strengthen existing missing data provisionsCalifornia Air Resources Board*

    California Air Resources Board

  • Quebec ProgramCap-and-Trade RegulationCovers largest emitters and electricity importers~ 80 covered entities~ 15% of total joint market emissionsIdentical holding and purchase limitsQuarterly auctions and Allowance Price Containment Reserve salesThree-year compliance obligation, no annual requirementSimilar know-your-customer requirementsEquivalent enforcement ability

    California Air Resources Board*

    California Air Resources Board

  • Quebec Program Offset ProgramConsistent with Californias program8% offset usage limit for complianceThree draft compliance offset protocolsLivestock DigestersSmall LandfillsDestruction of Ozone Depleting Substances from FoamNo opportunity for offset program or protocol shoppingARB would issue for projects in the United StatesQuebec would issue for projects in Quebec or Canada

    California Air Resources Board*

    California Air Resources Board

  • Environmental Analysis of Proposed AmendmentsNon-linkage amendmentsMostly administrative changesNo impacts beyond those already identified in Cap-and-Trade FEDLinkage amendmentsPotential for California entities to seek Quebec issued offsetsSimilar potential impacts as those identified by ARB for the Landfill Measure and ARBs Livestock Digester and Ozone Depleting Substances Protocol

    California Air Resources Board*

    California Air Resources Board

  • Staff RecommendationApprove Resolution 12-27Approve Resolution 12-28

    California Air Resources Board*

    California Air Resources Board

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