5-day moving average price and volume 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, moving average is derived from settlement prices. over time from ICE End of Day Reports. Daily trading volume units are 1000 allowance futures. Download data.
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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 (CARB) 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.
In September of 2016, the post-2020 successor to AB32, SB32, was signed into law and established emissions reductions targets of 40% below 1990 levels by 2030. The dashboard will be updated to reflect this once the second update to the scoping plan has been published, outlining specific plans for achieving these reductions.
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.
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 Definition:||An allowance is a tradable permit that allows the emission of one metric ton of CO2e (MTCO2e).|
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.
CARB holds two allowance auctions quarterly:
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.
|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:
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.
A suite of legal precedents (summarized by California’s Legislative Analyst Office) establish that proceeds from allowance auctions must be used to mitigate GHGs or the harmful effects of GHGs.
Passed in 2012, SB535 (D-De Leon) requires that 25% of proceeds benefit “disadvantaged communities” and that 10% are spent within such communities.
Visit CARB’s implementing legislation page for an overview of auction proceed implementation laws.
Proceeds from cap and trade auctions flow into the Greenhouse Gas Reduction Fund (GGRF) and are then appropriated through a two-step process established by AB1532 (D-Perez):
For a summary of the programs and projects funded from the GGRF, visit CARB’s auction proceeds budget appropriations webpage.
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.
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:
For full details, see the Regulation (§ 95811)
The program includes 3 compliance periods:
Each year starting in 2014:
Covered entities report previous year emissions in September and submit required allowances in November.
For further details, see CARB’s Regulatory Guidance Section 3.6.2.
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.
|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.
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.