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What is Cap-and-Trade?

California Cap on Greenhouse Gas Emissions and Market-Based Compliance Mechanisms California Air Resources Board January 2013. What is Cap-and-Trade?. One of a suite of measures to reduce greenhouse gas (GHG) emissions under AB 32

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What is Cap-and-Trade?

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  1. California Cap on Greenhouse Gas Emissions and Market-Based Compliance MechanismsCalifornia Air Resources BoardJanuary 2013 California Air Resources Board

  2. What is Cap-and-Trade? One of a suite of measures to reduce greenhouse gas (GHG) emissions under AB 32 The “cap” limits total GHG emissions from all regulated sources The “cap” declines over time—reduces emissions Participants are allowed to “trade” state-issued GHG emissions allowances—creates flexibility, reduces costs of compliance

  3. Definitions Covered entities (regulated parties) include First Deliverers to California’s grid Electricity generators Electricity importers Compliance instruments—each is equal to 1 metric ton of GHGs Allowances—Issued by the State Offset credits—Issued by State for reductions that take place outside the program Leakage—emissions going down in California that result in increases outside California

  4. Goals of the program Reduce GHG emissions “Price” emissions to incentivize change Spur innovation in low emissions and efficient technologies Complement existing programs to reduce smog and air toxics Ensure AB 32 reduction mandates for GHG are realized through strict limit Flexible mechanism—allows covered entities to find most cost effective reductions

  5. Requirements of Covered Entities Register with ARB Report GHG emissions annually Surrender allowances and offsets to match emissions at the end of each compliance period Reductions are program-wide, not facility specific Comply with recordkeeping, market rules, verification, and other requirements in the regulation

  6. How Does Program Design Ensure Market Integrity? • Purchase and holding limits—Prevent Market Manipulation • All traders must register in the cap-and-trade tracking system • The tracking system provides a chain of custody for allowances and offsets • Balance need for transparency and safeguards to prevent market manipulation California Air Resources Board

  7. Important Dates • First auction: November 2012 • Compliance obligation began: January 2013 • Second auction: February 2013 • First reserve sale: March 2013 • First compliance date: November 2014 California Air Resources Board

  8. November Auction Results • 2013 Vintage Allowances • Quantity of Allowances Offered: 23,126,110 • Quantity of Allowances Sold: 23,126,110 • Total Submitted Bids Divided by Total 2013 Allowances Available for Sale: 3.10 • Total Qualified Bids Divided by Total 2013 Allowances Available for Sale: 1.06 • Auction Reserve Price: $10.00 • Settlement Price Per Allowance: $10.09 • Allowances Purchased by Compliance Entities: 97.0% • 2015 Vintage Allowances • Sold: 5,576,000 at $10.00 California Air Resources Board

  9. Upcoming in 2013 • Board consideration of linkage amendments: February 2013 • Broader Cap-and-Trade Regulation Amendments: Fall 2013 • Benchmarking and leakage review • Allocation for new sectors • “But-For” Cogeneration • Cost containment • Resource shuffling • Compliance assistance for California Universities • Legacy power generator contracts • Implementation related amendments California Air Resources Board

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