SACRAMENTO - The Air Resources Board today announced a 99 percent compliance rate by covered industries for the first compliance period of California’s cap-and-trade program. Cap-and-trade is one of several groundbreaking greenhouse gas emissions reduction programs begun under the California Global Warming Solutions Act of 2006 (AB 32).

“We are pleased and proud that California is showing the world how to make cap-and-trade work to reduce pollution and create jobs,” said Air Resources Board Chair Mary D. Nichols.

AB 32 sets the goal of reducing emissions of carbon dioxide and other greenhouse pollutants by 2020 back to 1990 levels. The AB 32 programs will also serve as tools to help California reach Governor Brown’s midterm emissions target of an additional 40 percent reduction by 2030, and then 80 percent by 2050.

Total covered emissions in the first compliance period equal approximately 290.7 million metric tons.

The cap-and-trade program has three compliance periods under the current design. The latest report covers the first two years, 2013 and 2014. The next two compliance periods are three years each, with the second period running from 2015 to 2017 and the third period covering 2018 to 2020. The first period does not include emissions from transportation fuels.

Cap-and-trade covers emissions from utility and industrial facilities which annually emit more than 25,000 metric tons of carbon and entities that choose to opt in to the program. Those facilities must purchase either state carbon allowances or ARB-approved carbon offsets to account for their annual emissions under the annual emissions cap. The cap is reduced annually until the 2020 target is reached. 

Each allowance or offset is equal to one metric ton of carbon dioxide. The August auction settlement allowance price was $12.52 per ton.

Carbon allowances are sold at quarterly, state-managed auctions. Carbon offsets can be purchased on the open market. Covered parties may use offsets to cover up to eight percent of their compliance obligation. Offsets are emission reductions in sectors not covered by cap-and-trade. They cost somewhat less than allowances and can be used as a cost-control measure.

California’s next carbon allowance auction is scheduled for November 17, 2015. The auction notice and attachments can be viewed here.