California Releases Proposal to Extend its Carbon Cap-and-Trade Program through 2031

July 12, 2016

The California Air Resources Board (CARB) has released a preliminary draft of proposed amendments to extend and improve the operation of California’s carbon emissions trading program.

California’s economy-wide cap-and-trade program, which has operated since 2013, currently runs through 2020. It is a major component of California’s suite of policies enacted to meet its binding target of reducing GHG emissions to 1990 levels by 2020. The 2020 target and authority to implement many of these regulations were established by California’s comprehensive climate change legislation, AB 32.

The proposed amendments would establish decreasing emissions caps for covered entities, achieving a 40 percent reduction in emissions by 2031 from 1990 levels, representing approximately a 3.5 percent annual reduction. The proposal also includes preliminary caps through 2050 to achieve the state’s target of 80 percent below 1990 levels.

The proposal would allow regulated entities to use current allowances to comply with the post-2020 budget. Unsold allowances would be placed in a reserve that would be made available if allowance auction prices reach a pre-determined threshold and would then be sold at $60 more per ton than the auction price.

CARB plans to post the final versions of the regulations on August 2, including details on how California plans to use its cap-and-trade program to comply with the EPA’s Clean Power Plan. In its preliminary draft, CARB states that it will propose to comply with the federal standards for existing power plants through a “state measures” approach. The “state measures” approach allows states to use existing policies to comply with the federal standards even if the policies apply to a broader group of emitting sources than just existing power plants, but requires a federally-enforceable backstop that guarantees compliance with federal targets if the state policy does not meet the level of required emission reduction from power plants.

CARB will release the final regulatory package, including the CPP provisions, on August 2, 2016. CARB will consider the amendments at a September 2016 board meeting before voting on them in spring 2017.  The preliminary draft of proposed amendments to extend and improve the operation of California’s carbon emissions trading program was released on July 12, 2016.