Part 1 can be read by clickinghere.
California State GHG Budget
Each year, ARB determines how many
allowances are available to be auctioned. The sum total of allowances is equal
to the state’s GHG “budget,” or “cap.” The cap is initially equal to the sum of
baseline GHG emissions from the covered entities. The inventory subject to the
cap will be approximately 395 million MT in 2015.
Over time, ARB will
gradually reduce the cap and auction off fewer allowances; thereby, the state’s
total emission of GHG will be reduced. The program’s goal is to reduce California’s GHG
emissions to 1990 levels by 2020. Ostensibly, the goal can be met by annual cap
reductions of 3%.
Trading, Banking, Retiring
ARB will establish auctions to disburse
allowances. Any entity that purchases, holds, transfers or surrenders
compliance instruments must be registered with ARB. Covered entities must report
their GHG emissions annually and surrender allowances to match their emissions.
There will be two auctions held in 2012: Aug. 15 and Nov. 14. Beginning in
2013, auctions will be held quarterly. Entities that must procure allowances
will pass costs on to their customers. ARB’s auction proceeds will be invested
in alternative-energy projects and given out as rebates to electricity rate
A covered entity
that wishes to trade allowances to another entity may do so at any time, but
the trade is not recognized by ARB until the parties submit appropriate
paperwork. Allowances not used in the year issued can be “banked” for use in a
future year. Allowances can also be purchased by entities not covered under the
program (e.g., “green” organizations) for purposes of “voluntary retirement.” Emissions
from combustion of biomass fuels are not subject to compliance when reported as
responsible for generating less than 25,000 MT/year are not currently required
to procure allowances, the mandatory reporting threshold was recently reduced
to 10,000 MT/year, which makes it appear that significantly
more entities will be covered by the program in the future. There is also
speculation that offsets will be less expensive than allowances, but the price
of each will ultimately be determined by market forces.