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Developments in California Cap-and-Trade Regulation

On March 28, 2012, two environmental organizations filed a lawsuit challenging the Cap-and-Trade Regulation adopted by the California Air Resources Board (CARB). The suit, which is the first one filed since CARBs adoption of the program, only seeks to enjoin the use of offsets to meet covered entities compliance obligations. Because it does not seek to prevent the Cap-and-Trade program from being implemented with respect to capped sectors, this lawsuit is unlikely to delay or halt implementation of the program. By eliminating one of the programs primary cost-containment mechanisms, however, the suit could significantly increase compliance costs for capped sectors.

On the day before the suit was filed, CARBs Chairman, Mary Nichols, announced in a Senate hearing that the first auction of greenhouse gas (GHG) allowances, scheduled for August 2012, will only be a pretend auction, rather than an actual auction of allowances in which real dollars change hands.

On March 30, 2012, CARB released a discussion draft of amendments to the Cap-and-Trade Regulation to allow for use of compliance instruments from linked jurisdictions, which, at this time, is only contemplated to include Quebec. The discussion draft also proposes several changes to the existing Regulation, including significant changes to program elements designed to prevent market manipulation.


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