Intro to IETA

1. State of play in the USAHenry Derwentderwent@ieta.orgLatin American Carbon ForumSeptember 28, 2011

2. US Update Intro to IETA • Created in June 1999, the first business group devoted to pricing and trading GHG reductions • HQ in Geneva, Offices in Brussels, Toronto, Washington, DC, San Francisco and Seoul • 160 members, including leading international companies from across the carbon trading cycle: • oil, electricity, cement, aluminum, chemical, paper, and banking, data verification and certification, brokering and trading, legal, and consulting industries • IETA is dedicated to: • The objectives of the United Nations Framework Convention on Climate Change (UNFCCC) and ultimately climate protection; • The establishment of effective market-based trading systems for greenhouse gas emissions by businesses that are demonstrably fair, open, efficient, accountable and consistent across national boundaries; and • Maintaining societal equity and environmental integrity while establishing these systems.

3. The Bigger Picture

4. California Policy Update AB 32 Timeline • California’s Global Warming Solutions Act (AB 32) passes in 2006, requiring emissions to decrease to 1990 levels by 2020, a 25% reduction statewide • AB 32 designates the California Air Resources Board (ARB) to develop reduction regulations and design the emissions trading market • CARB passed preliminary draft regulations December 17, 2010, CARB to finalize rules 2011 • Market start date is currently set for January 1, 2012 • First year is a “stress test” of the system with full compliance to begin in 2013 • ARB Agenda for Board Hearing will be posted on 10 October 2011 • ARB Board Hearing in Sacramento on 20-21 October 2011 • ARB to submit final regulations to California’s State Office of Administrative Law on 27 October 2011 • Passage of final regulations must occur by 28 October 2011

5. California Policy Update AB 32’s Cap and Trade System • Compliance Period: 3-year • Who is Covered: Only electricity and industrial sources initially, phasing in fuel distributors in 2015 • Allocation: “slow start” approach, significant free allocation moving to greater auction volumes over time • Auction: • 1st compliance period, $10/t floor price and $40/t soft ceiling price • Price Containment Reserve: • Contains 4% total allowances issued • One third of reserve available for purchase at three set prices: $40, $45, $50 • Banking: unlimited banking subject to holding requirements, • Borrowing: not permitted (unless to pay the penalty for non-compliance) • Offsets: entities can use up to 8% of their compliance obligation with offsets • Currently accepting offsets from four project types: livestock; urban forestry; Ozone Depleting Substance Destruction; and forestry

6. California Policy Update Moving Forward • AIR vs ARB case • Association of Irritated Residents (AIR) sued ARB for violating the California Environmental Quality Act by failing to complete a sufficient analysis of the environmental impacts of alternatives to the C/T system • ARB released additional Scoping Plan and case has since been dismissed • More legal challenges to come? • Lots of work to do • Buyer liability issue still needs to be addressed • To date, California’s ARB has identified four other offset project types. • Three additional candidate project types under consideration: Pneumatic Valve Protocol (ACR); reduction of methane and other GHGs from rice cultivation and harvesting (protocol under review at multiple carbon registries); and reduction of nitrous oxide emissions by decreasing nitrogen-based fertilizers (ACR).

7. California/WCI Update California questions • Can California meet its emissions reductions goals in time? • California is the lynch pin to the Western Climate Initiative (California, Quebec, British Columbia). • Can the California C/T program be successfully linked to other regional C/T programs? • Other National Programs? • Will California be a model for a US federal C/T program?

8. WCI Update Western Climate Initiative: A broader market • On 14 July, the WCI released draft protocol development and adoption process that can be followed by Partner Jurisdictions to incorporate into provincial/state rules and regulations. • WCI’s draft protocol process provides a “step-by-step description of how WCI partners will review existing protocols in regard to how they meet WCI offset criteria”. • Stakeholders had until 19 August 2011 to submit comments on the proposed process.

9. RGGI Update RGGI: The little market that could • Regional Greenhouse Gas Initiative (RGGI) is a regional GHG cap & trade program between 10 Northeastern states to reduce emissions from the power sector 10 percent by 2018 • - Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. • First mandatory market-based effort in the US to reduce GHG emissions launched in 2009. • Full Auction, with revenue channeled into RE/EE • RGGI Offsets limited to 5 eligible project types, but price triggers in effect

10. RGGI Update Retooling RGGI • Governor Christie has moved to pull New Jersey out of the program though he faces challenges from the State Legislature. • Maine Governor Paul LePage wanted out, but seems to have given up • A 2011-2012 scheduled review process has begun with a stakeholder meeting on September 19th. Big question - how much will the cap be reduced? • Fall 2011: Review program successes, identify & model potential policy scenarios • Winter 2012: Late-January stakeholder meeting(s) to receive stakeholder comments on the policy scenario runs, the assumptions for macroeconomic modeling as well as other elements of the program success, program impacts, program operations, additional reductions, imports and emissions leakage, and offsets. • Spring 2012: Present the comprehensive set of recommendations to stakeholders with potential changes to the RGGI program during the second control period (2012-2014).

11. Federal Policy Update US Environmental Protection Agency • Early rulemaking for ground level ozone has been suspended • scheduled 2013 review is still expected • New Source Performance Standards under the EPA Clean Air Act • Can flexible mechanisms be established under the 111d rules? • Potential for regional programs to qualify for equivalency? • Release of Power Sector NSPS Draft Rules Delayed to 30 September 2011 • Forget MACT – go for MAJOR • It’s the jobs, stupid.

12. Contact: Henry Derwent derwent@ieta.org