The Climate Report - Winter 2011

On December 16, 2010, the California Air Resources Board ("CARB") approved a resolution ordering its Executive Officer to finalize, with certain changes, the greenhouse gas cap and trade regulations proposed by CARB on October 29, 2010. Once published, CARB will allow 15 days for public comment on the latest changes, and the Executive Officer will respond to any such comments, make any other "conforming" modifications deemed appropriate, and then finalize the cap and trade regulations.

California's cap and trade program will serve as a U.S. test case for mandatory, economy-wide greenhouse gas market systems.

Existing market-based programs, like the Regional Greenhouse Gas Initiative and the Climate Action Reserve, are either voluntary in nature or mandatory only for certain economic sectors. California's program, however, represents the first cap and trade program for greenhouse gas emissions that is mandatory for numerous sectors of the economy.

Although CARB has now approved the bulk of the cap and trade program, several key decisions lie ahead. The Executive Officer must evaluate the modifications called for by the resolution and fill in a host of other details for the program. Some of these remaining details will have a significant effect on the program. For example, CARB has yet to propose a full methodology for distributing emissions allowances to electric utilities. For other industrial sectors, CARB still must develop energy efficiency benchmarks that will influence emissions allowance allocations to those sectors. There are also uncertainties surrounding the development of domestic offset protocols, linkage to international offset programs, and full linkage with programs in other jurisdictions.

CARB plans to issue a follow-up report on a large portion of the open issues, including a final allowance allocation system, no later than July 31, 2011, and intends to move quickly to implement the program. Entities that may be affected by the new cap and trade program, either as mandatory covered entities or voluntary participants, have little time to spare in developing plans to comply with, or benefit from, the program.

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