Portland, 16 July (Argus) — The California Air Resources Board (ARB) has released a list of proposed changes to its cap-and-trade program aimed at keeping allowance prices in check, and easing the compliance burden for the industrial and manufacturing sectors.
The proposed amendments iron out several outstanding issues with the implementation of the cap-and-trade program, which took effect in January. The changes will be considered by the board at its fall meeting on 24-25 October.
Among the suggested changes is a mechanism aimed at preventing carbon allowance prices from exceeding a certain threshold. ARB proposes to make more allowances available for sale at the price-containment reserve auction that takes place immediately before the 1 November compliance deadline in each period of the program.
Under the proposal, 10pc of allowances held in the auction holding account will be made available at the highest price tier of the reserve auction if the number of accepted bids exceeds the number of allowances at that tier. Allowances are offered at the quarterly reserve auctions in three price tiers - $40/allowance, $45/allowance, and $50/allowance. The reserve auctions are designed to give emitters that did not have an opportunity to buy allowances at the regular quarterly auctions a second chance to buy emissions permits at fixed prices.
The agency is also seeking to make more allowances available to emitters by allowing any future vintage allowances that are not sold at a regular auction to be sold when the vintage becomes current. Under the existing regulation, ARB sells current year allowances and those from three years ahead at each quarterly auction.
Industrial sectors that are deemed at risk of moving out of California because of cap-and-trade compliance costs will receive free allowances covering 100pc of emissions in the first and second compliance periods, instead of just the first one. ARB is making the change to give industry more time to find ways to lower its emissions. ARB is also proposing to increase the allocation in the third period from 50pc to 75pc.
ARB proposed giving natural gas suppliers 100pc of allowances for free in all compliance periods to help shield customers against rate hikes. But the suppliers must offer for sale at auction at least 25pc of those allowances in 2015, when they are first covered by the program, leading to a minimum 50pc consignment by 2020.
ARB has also proposed allocating free allowance to 19 generators with power purchase agreements that do not assign responsibility for covering greenhouse gas compliance costs. The free allowances would be distributed based on a formula in the proposal for emissions in 2013 and 2014 and will be available in each generator's holding account by 15 October 2014. Holders of the so-called legacy contracts must attest that the agreements were originally executed before 1 September 2006 and have not been amended since to account for greenhouse gas costs. The generators must also attest to having made a good faith effort to renegotiate the terms of the agreements.
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