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CARBON PRICE

Price of California Carbon Allowance Futures An allowance is a tradable permit that allows the emission of one metric ton of CO2e.The first allowance auction was held on November 14, 2012, a few months before the cap and trade program took effect on January 1, 2013. For dates prior to the first auction, this graph captures the price of 2013 vintage futures, traded before actual allowance prices could be discovered through auctions. From 2013 onward, all prices are for the current year's vintage allowance with a futures contract expiring in December of that same year. From January 1, 2014 onward, all prices are settle prices. over time from ICE End of Day Reports. Daily trading volume units are 1000 allowance futures. Download source data.

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CAP AND TRADE

California’s Global Warming Solutions Act of 2006 (AB32) set a series of policies and programs across all major sectors to return California emissions to 1990 levels by 2020. The California Air Resources Board updates a Scoping Plan every 5 years to outline California's strategy to meet AB32 goals. The Cap and Trade Program caps greenhouse gas (GHG) emissions from key sectors in California, ensuring that AB32 GHG reductions are met.

The California Cap and Trade Program is designed to achieve cost-effective emissions reductions across the capped sectors. The Program sets maximum, statewide greenhouse gas (GHG) emissions for all covered sectors each year (the “cap”), and allows covered entities to sell off allowancesAn allowance is a tradable permit that allows the emission of one metric ton of CO2e. (permits) that they do not need (the “trade”). The California carbon price is driven by allowance trading.

By 2020, the Cap and Trade Program is expected to drive approximately 22% of targeted greenhouse gas reductions still needed in capped sectors after reductions from AB32’s complementary policies. For general information on how cap and trade systems work, check out this C2ES primer on cap and trade.

COMPLEMENTARY POLICIES

EMISSIONS CAP

EMISSIONS HISTORY

Source: California Air Resources Board's Status of Scoping Plan Recommended Measures. . Note: For many measures, we link to the initial staff report, as it often provides the latest official information from CARB’s regulatory process.

Source: The California Air Resources Board's 2020 Emissions Forecast.

Source: The California Air Resources Board's Greenhouse Gas Emissions Inventory.


CAP AND TRADE PROGRAM DETAILS

The Cap and Trade Program covers the power and industrial sectors starting in 2013 and will expand to cover natural gas and transportation fuels in 2015 (see here for a helpful timeline). Once fully in effect, the program will cover roughly 85% of California’s GHG emissions. The California Air Resources Board auctions allowances to covered entities. Allowances are allocated freely to electric utilities to mitigate costs on customers. Utilities must use the value associated with the allowances to benefit ratepayers. Free allocation decreases over time. Regulated entities can also meet 8% of their obligations by buying CARB-approved offsets — emissions reductions from uncapped sectors.

Allowance Allocation

Allowance Definition: An allowance is a tradable permit that allows the emission of one metric ton of CO2e (MTCO2e).
Free Allocation:

Electrical Distribution Utilities — All utility allowances are allocated freely to protect ratepayers from rate shocks. Utilities must use the value associated with the allowances to benefit ratepayers. Investor-owned utilities are required to return a portion of the value to consumers via a Climate Credit on their utility bill (see CPI’s blog for details).

Industry Sectors — Allocation determined according to leakage prevention and sector transition assistance needs.

For more details, see CARB’s allowance allocation page and Regulatory Guidance Document Section 3.5

Auction:

CARB holds two allowance auctions quarterly:

  • Current Auctions offer current and previous year vintages.
  • Advance Auctions offer vintages of the subsequent calendar years.

Entities submit bids in a single-round, sealed-bid auction format. Allowances are awarded to entities starting with the highest bids until all available allowances are exhausted. The “settlement price” is lowest price at which the allowance supply is exhausted. All entities will pay the settlement price or auction reserve price (see below) — whichever is highest — for their awarded allowances.

See here for more details on auction procedures and here for further details and auction schedule updates.

Auction Reserve Price:

For each auction, CARB sets an Auction Reserve Price — a minimum price below which allowances cannot be sold at auction. The Regulation (§ 95911) set the 2012 and 2013 Auction Reserve Price at $10/allowance for both the current and advanced auctions. Starting in 2014, the Auction Reserve Price increases annually by 5% plus the rate of inflation (Consumer Price Index for All Urban Consumers).

For more details, see CARB’s Regulatory Guidance Document Section 5.1.4

Allowance Price Containment Reserve:

CARB sets a designated number of allowances from each compliance period budget into the Allowance Price Containment Reserve (the reserve).The reserve is designed to reduce the risk of higher-than-expected allowance prices.

Reserve volumes by compliance period:

  • 2013-2014: 1% of allowance budget
  • 2015-2017: 4% of allowance budget
  • 2018-2020: 7% of allowance budget

Allowances in the reserve are available for purchase quarterly at three tiers of pre-established prices that increase annually by 5% plus rate of inflation (Consumer Price Index for All Urban Consumers). In 2013, APCR tiers are priced at $40, $45, and $50.

For more details, see CARB’s Regulatory Guidance Document Section 5.2.2. See here for general information on cost containment mechanisms.

Covered Entities

Sectors:

2013-2020: First deliverers of electricity (in-state and imported) and large industrial facilities

2015-2020: Distributors of transportation fuels, natural gas, and other fuels

For more details on covered sectors, see CARB’s Regulatory Guidance Document Section 2.0. CARB also maintains a current list of covered entities, downloadable through the "List of Covered Entities" link on the left side of this page.

Individual Emitters:

Generally, facilities that exceed annual emissions 25,000 metric tons of CO2e (according to mandatory GHG emissions reporting) are covered by the program. As of 2015, all emissions from electricity-importers are covered (i.e., no threshold).

The following parties are required to participate in the Cap and Trade Program if they meet the thresholds delineated by the Regulation:

  • Operators of industrial facilities
  • Operators of electricity generation in California
  • Importers of electricity from out of state
  • Fuel suppliers and distributors
  • Carbon dioxide suppliers

For full details, see the Regulation (§ 95811)

Compliance Periods and Allowance Submission

Compliance Periods: The program includes 3 compliance periods:
  • Period 1: 2013-2014
  • Period 2: 2015-2017
  • Period 3: 2018-2020
Allowance Submission:

Each year starting in 2014:

Covered entities report previous year emissions in September and submit required allowances in November.

  • Each year, entities must submit allowances for at least 30% of covered emissions from the previous year.
  • The year after the end of a compliance period, entities must submit allowances for remaining covered emissions for the period.

For further details, see CARB’s Regulatory Guidance Section 3.6.2.

Banking:

Covered entities can save (“bank”) allowances for purposes of future compliance to guard against shortages or price swings. They cannot submit future year allowances for compliance with a previous year (i.e., “borrow” future vintage year allowances).

For further details, see CARB’s Regulatory Guidance Section 5.1.8.

Offsets

Tool for compliance:

An offset is a credit for greenhouse gas reductions achieved by an activity outside the capped sectors. Under the Program, each compliance offset credit is equal to 1 metric ton of CO2e.

Covered entities can use CARB-issued compliance offset credits to meet up to 8% of their allowance obligations for each compliance period.

Compliance Offset Protocols:

Offset credits can only be quantified using CARB-approved Compliance Offset Protocols . CARB has adopted five Compliance Offset protocols to date:

CARB is currently considering several additional protocols, which would allow additional offset types to generate credits.

See here for detailed and updated information on Compliance Offset Protocols.

Linkage to Other Trading Programs

Québec:

California’s cap and trade program linked to the Province of Québec’s cap and trade program on January 1, 2014.

See here for details.