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| California Carbon Allowance | |
|---|---|
| Name | California Carbon Allowance |
| Established | 2012 |
| Program | California Cap-and-Trade Program |
| Administrator | California Air Resources Board |
| Market | Regional Greenhouse Gas Initiative; Western Climate Initiative |
| Type | Emissions allowance |
| Compliance | Stationary sources, electricity sector, industrial facilities, fuel distributors |
California Carbon Allowance
The California Carbon Allowance is a tradable emissions permit issued under the California Cap-and-Trade Program administered by the California Air Resources Board and enacted under the Global Warming Solutions Act of 2006. It functions within a market-based framework influenced by policy actions from the California Legislature and regulatory design from state agencies, and interacts with regional initiatives such as the Western Climate Initiative and bilateral agreements with provinces and states.
California Carbon Allowances are compliance instruments allocated to regulated entities covered by the California Cap-and-Trade Program and are used to meet obligations established under the Global Warming Solutions Act of 2006 and implementing California Air Resources Board regulations. The program covers sectors including the electricity sector, transportation fuel distribution under the Low Carbon Fuel Standard policy context, and large industrial facilities such as refineries and cement plants. Allowances have been distributed via auction and free allocation mechanisms developed through rulemakings informed by stakeholders like California Manufacturers & Technology Association and environmental groups such as the Natural Resources Defense Council.
The allowance concept was codified after passage of the Global Warming Solutions Act of 2006 (AB 32) and the California Air Resources Board adopted cap-and-trade regulations following environmental reviews connected to the California Environmental Quality Act. Early legal and political developments involved litigation and scrutiny from organizations including the California Chamber of Commerce and filings in state courts. Regulatory updates have followed legislative actions by the California State Assembly and the California State Senate, and have been coordinated with interjurisdictional bodies such as the Western Climate Initiative and governmental counterparts like the Government of Quebec.
The market design for California Carbon Allowances incorporates periodic auctions run by the California Air Resources Board overseen by auction administrators, secondary trading on compliance and over-the-counter markets, and infrastructure provided by entities such as ICE Futures U.S. and CME Group participants. The program uses a declining cap informed by statewide greenhouse gas inventories maintained by the California Air Resources Board and integrates monitoring, reporting, and verification standards aligned with protocols associated with the Environmental Protection Agency reporting frameworks. Trading mechanisms allow covered entities and market participants including utilities like Pacific Gas and Electric Company to buy, sell, bank, or retire allowances.
Allowances have been allocated through a mix of free distribution to emissions-intensive, trade-exposed industries such as Chevron Corporation-operated refineries, and via quarterly auctions open to entities meeting California Air Resources Board registration requirements. Compliance periods require covered sources to surrender allowances equal to verified emissions, subject to enforcement by the California Air Resources Board. Procedures for offsets involve protocols developed with registries like the Climate Action Reserve and the Verified Carbon Standard to allow limited use of offsets within compliance obligations. Auctions and allocation rules have been subject to review by legislative committees including the Assembly Committee on Natural Resources.
Allowance prices have been influenced by supply control mechanisms, market expectations, regulatory amendments from the California Air Resources Board, and external factors such as fuel price movements tracked by the U.S. Energy Information Administration and macroeconomic conditions discussed in reports by the California Legislative Analyst's Office. Market dynamics reflect interactions among participants including trading firms listed on exchanges like ICE Futures U.S., utilities such as Southern California Edison, and corporate compliance buyers. Price volatility has been mitigated by policy tools such as allowance reserves and market stability mechanisms established in rulemakings.
The cap-and-trade program, through California Carbon Allowances, aims to reduce greenhouse gas emissions statewide, complementing policies like the Low Carbon Fuel Standard and renewable portfolio standards overseen by the California Public Utilities Commission. Economic impacts are assessed by agencies and research institutions including the California Environmental Protection Agency, the University of California, Berkeley Labor Center, and the Nonpartisan Legislative Analyst's Office. Studies have evaluated outcomes for emissions-intensive industries like Port of Los Angeles-area facilities and for communities represented by organizations such as the California Environmental Justice Alliance.
Criticism and litigation have arisen from trade groups such as the California Chamber of Commerce, industrial stakeholders including Western States Petroleum Association, and local governments contesting environmental justice implications raised by Communities for a Better Environment. Legal challenges have been adjudicated in state courts and discussed in policy hearings before the California State Assembly, with contested issues including auction procedures, allowance allocation, and the interaction with California Environmental Quality Act requirements.
California Carbon Allowances operate alongside and have been linked to programs such as the Quebec Cap-and-Trade System under the Western Climate Initiative memorandum. The linkage permits joint auctions and cross-jurisdiction trading with participants from the Government of Quebec and has been featured in cooperative agreements with other jurisdictions exploring market linkage, such as discussions with the Regional Greenhouse Gas Initiative member states. Complementary policies include the Low Carbon Fuel Standard and regulatory programs administered by the California Public Utilities Commission and the California Energy Commission.
Category:Climate policy Category:Carbon markets Category:California law