CARB provides further flexibility and cost-containment for companies in cap-and-trade program
SACRAMENTO – The California Air Resources Board (CARB) today approved amendments to the state’s cap-and-trade program to streamline implementation and contain costs through 2030. The amendments set a ceiling on escalation of the price per ton for California companies in the program. This ceiling will ensure the program continues to drive down greenhouse gases emissions while providing certainty about future costs.
“These amendments keep California’s highly successful cap-and-trade program on track to meet our post-2020 emission reduction targets,” said CARB Chair Mary D. Nichols. “We listened to stakeholders and believe we have balanced the needs of business, our communities and the environment.”
In addition to a price ceiling on allowances, the amendments also ensure that California businesses stay competitive against out-of-state companies that do not have cap-and-trade obligations. The changes also implement statutory requirements to reduce the number of carbon offsets allowed after 2020.
The amendments implement Assembly Bill 398, authored by Assemblymember Eduardo Garcia, an ex-officio member of CARB, which passed the Legislature in 2017 with bipartisan support. The bill also extends the cap-and-trade program to 2030.
The price ceiling prevents the price per ton for carbon emissions in California from rising without limit, especially as the cap on total emissions declines over time. This price control mechanism also includes separate “reserves” of allowances that will be made available beginning in 2021 at two fixed price points, known as reserve tiers. These reserve tiers are designed to prevent carbon allowance prices from rising too rapidly.
The current program also has reserve tiers, although CARB has never held a reserve sale since the program began because the price of allowances has tended to hover at, or just slightly above, the floor price.
As in previous years, all allowance floor prices and reserve tier prices are subject to annual increases of five percent plus inflation.
The amendments approved today also continue to link California’s cap-and-trade program with the Québec program, and discontinue linkage with Ontario, which opted out of the joint program in July.
The amendments also make additional minor changes to improve and clarify the cap-and-trade program. The Board will continue to monitor the program and make adjustments as needed.
The cap-and-trade program is one of several major greenhouse gas emissions reduction programs developed under Assembly Bill 32, the Global Warming Solutions Act of 2006. AB 32 requires the state to reduce emissions back to 1990 levels by 2020. California’s greenhouse gas emissions dropped below that target in 2016. The state’s 2030 reduction target is a further 40 percent reduction below the 1990 levels.
Other AB 32 programs work in tandem with cap-and-trade to reduce emissions across the economy. Those other programs include the Low Carbon Fuel Standard, the Renewables Portfolio Standard and the Advanced Clean Cars program. The Legislature last year defined the role for cap-and-trade in helping to achieve the statewide 2030 target under Senate Bill 32. That 2030 target is a 40 percent reduction below 1990 levels.