ARB Issues Preliminary Draft Cap and Trade Rule Under AB 32

Posted Dec. 7, 2009

On November 24, ARB issued its Preliminary Draft Rule for a California Cap-and-Trade Program for public review and comment. Comments on the Preliminary Draft were requested by January 11 and will be considered in the preparation of a Proposed Regulation for public comment in Spring 2010.

The Preliminary Draft Rule anticipates a cap and trade scheme with a declining cap with three-year compliance periods. During the initial compliance period, starting in 2012, the Draft proposes to cover only electricity generation (including imports), and major industrial sources with emissions at or above 25,000 million metric tons CO2 equivalent (MMT). In the second compliance period (starting in 2015) the Draft proposes to also cover transportation fuels and industrial facilities with emissions below the 25,000 MMT threshold, as well as commercial and residential fuel combusion of natural gas and propane.

Under the text of the Kerry-Boxer and Waxman-Markey bills being considered in Congress, a State cap and trade regime would be preempted between 2012-2017, but emission allowances under the State system could be tradable for federal emission allowances if a federal scheme were implemented. There has been significant discussion of auctions in the California system in the past, but the federal bills anticipate considerably more free allocations in the early years of a program. Most recently at the state level, the ARB-commissioned Economic and Allocation Advisory Committee has been considering these issues and will be holding a public meeting in Sacramento next Monday, December 14.