AB32: CA ’ s Global Warming Solutions Act of 2006

1. AB32: CA’s Global Warming Solutions Act of 2006 • first ever statewide cap of GHG pollution • CA is 12th largest source of GHG pollution in world • law designed to reduce GHG emissions by 25% by 2020 (back to 1990 e • emissions levels) • - signed into law by then-Gov. Schwarzenegger • Key provisions: • California Air Resources Board (CARB) establishes reporting program, • starting with electrical consumption (imported & exported) • 2) CARB sets goal of 1990 emissions by 2020 • 3) “early” action GHG reductions published by June 2007; adopts regulations • for those measures by Jan 2010 • - “scoping” plan published Jan 2009: how to meet 2020 emissions goal • - full regulations for 2020 goal adopted by Jan 1, 2011 • - regulations enforced beginning Jan 1, 2012

2. 4) Market-based compliance mechanism - e.g. cap and trade - either system of “declining annual aggregate emissions limitations” or GHG emission “exchanges, banking, credits, and other transactions” 5) Governor can adjust timelines in the face of “extraordinary circumstances, catastrophic events, or the threat of significant economic harm”

3. Achievements thus far • Dec 2007: CARB approves a limit of 427 million metric tons of CO2e by 2020 • (current emissions at 455 million metric tons, down from 490 in 2007) • - Requires reporting and verification of emissions from large industrial sources • Feb 2008: CARB approves policy encouraging voluntary early actions for reductions; establishes procedure for formal review of project participant’s quantification methods 2011 power sector emissions down 22% from 2010 levels!

4. Emissions and GDP trends

5. As in RGGI, we see drastic emissions reductions as GDP grows.

6. Strategies • Cap and trade program: covers 85% of emissions state-wide • Electricity and energy: improved appliance efficiency standards, • and nation’s most ambitious RPS standard (33% by 2020) • High potency GHG emissions: target refrigerants, etc • Agriculture: more efficient equipment, fuel & water use • Transportation: federal CAFÉ standards for use in 2012-2016 period • Industry: target 800 largest emitters; including cement • Forestry: preserve forest sequestration • Waste and Recycing: reduce CH4 leaks from landfills; reduce, reuse, recycle

7. Cap-and-Trade Mechanism • adopted Dec, 2010 • compliance period begins 2013 • quarterly auctions of CO2 allowances (first in Nov, 2012; recently in 2013) • auction of 10% of allowances to start, dial back • reductions of 2% per year from 2012-2015; -3% per year from 2015-2020 • fuel distributors (transporationsector) included from starting in 2015 • On offsets: • CARB-sanctioned offsets include US Forest, Urban forest, Livestock projects, • and Ozone-depleting substances projects • sued by environmental groups; decision upheld offset program • On leakage: • By giving free allowances, reduce compliance costs • recipients of free allowances will be determined by degree of • 1. emissions intensity • 2. trade pressure

8. first auction resulted in prices at $10.09/ton (floor is $10/ton – why?) • w/ Chevron, ConAgra , Regents of California, Valero(refineries) participants • second auction (Feb 2013) price at $13.63/ton; carbon futures (2016) • purchased at $10.71/ton • so far $477 million raised in two auctions • Pending Legal Action: • CA Chamber of Commerce filed suit in Nov, 2012: the allowance auction • represents an impermissible tax whose effects will damange CA’s • economy and reduce CA’s competitiveness

9. Partial list of 70+ Qualified Buyers