California Cap and Trade
- François-Xavier Branthôme
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California’s cap-and-trade program, launched in 2013, is one of a series of major policies the state is using to lower its greenhouse gas emissions. California’s program is the fourth largest in the world, following the cap-and-trade programs of the European Union, the Republic of Korea, and the Chinese province of Guangdong.
California’s emissions trading system is expected to reduce greenhouse gas emissions from regulated entities by more than 16% between 2013 and 2020, and by an additional 40% by 2030. It is a central component of the state’s broader strategy to reduce total greenhouse gas emissions to 1990 levels by 2020 and 40% below 1990 levels by 2030.
The cap-and-trade rule applies to large electric power plants, large industrial plants, and fuel distributors. Around 450 businesses responsible for about 85% of California’s total greenhouse gas emissions must comply. California has linked its program with similar programs in the Canadian provinces of Ontario and Quebec, meaning that businesses in one jurisdiction can use emission allowances (or offsets) issued by one of the others for compliance.
Building on lessons from the northeast Regional Greenhouse Gas Initiative (RGGI) and the European Union Emission Trading Scheme (EU ETS), the California program blends proven market elements with its own policy innovations.
The California Air Resources Board (CARB) implements and enforces the program. The cap-and-trade rules first applied to electric power plants and industrial plants that emit 25 000 tons of carbon dioxide equivalent per year or more. Beginning in 2015, the program’s overall greenhouse gas emissions cap declines by 3% annually from 2015 through 2020, and faster from 2021 through 2030.
Emissions allowances are distributed by a mix of free allocation and quarterly auctions. The portion of emissions covered by free allowances varies by industry and by how efficient each facility is relative to industry benchmarks.
Price minimum: Began at USD 10 in 2012 and increases 5% annually over inflation
Price maximum: Additional allowances are available for sale when prices reach an upper threshold, set at USD 40 in 2012, increasing 5% annually over inflation. Beginning in 2021 a hard price ceiling will be set, and an unlimited supply of allowances will be available at this price.
See also our article “CO2: the Québec-California-Ontario market” and “EU: the high stakes of carbon policy”
Some complementary data
For more details:
November 2017 Joint Auction #13