On October 20, 2011, the California Air Resource Board (“CARB”) announced the adoption of the final cap-and-trade regulation, which establishes a statewide limit on the production of greenhouse gas emissions. 

The regulation aims to reduce overall greenhouse emissions in California to the 1990-level by 2020.  The 2020 goal represents a 15% reduction in emissions compared to expected emissions in 2020 if no plan had been enacted.  Reduction measures will be introduced in two phases; beginning in 2013, major industrial sources will be targeted and, beginning in 2015, distributors of transportation fuels, natural gas and other fuels will also be regulated.  In total, according to CARB, the regulation impacts 360 businesses and 600 facilities.

Companies regulated under the program will not be given a specific limit on the greenhouse gases they can emit but, rather, must provide sufficient allowances to cover their emissions.  One allowance is equal to one ton of carbon dioxide.  Each year, as the cap declines, the number of allowances will decrease as well.  Allowances will be awarded by CARB during the initial period of the program (2013-2014) to the most efficient companies.  Additional allowances may be purchased during CARB quarterly sales and on the market. Electric utilities will be given allowances to sell at auction to help achieve AB32 goals.  The first auctions are expected to take place in August and November 2012 (for 2013 allowances).

The regulations also provide for the use of offsets to meet emissions requirements.  Up to eight percent (8%) of a company’s emissions may be covered using credits from CARB-certified offset projects.  Offsets are reductions in greenhouse gas emissions from sources outside of the cap-and-trade program.  

CARB has indicated that the regulations are designed such that California may link with other programs in the Western Climate Initiative.  CARB has also approved an adaptive management plan to monitor the impact of the program on localized air quality and forests.

The final regulations must be filed with the California Office of Administrative Law by October 28, 2011.

Please contact John Leonti at (949) 622-2769 or john.leonti@troutmansanders.com with any questions.