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California Air Resources Board Proposes to Finalize Cap-and-Trade Regulations and Seeks Public Comment

July 29, 2011

By Robert P. Hoffman & Colin J. Barreno

On July 25, 2011, the California Air Resources Board (ARB) released its proposed final cap-and-trade regulations, initiating a 15-day public comment period on the specifics of a cap-and-trade program slated to start in 2012, with compliance obligations beginning in 2013. As compared to the original version of the regulations, adopted in late 2010, the current proposal includes significant modifications, highlights of which include:

  • Changes to market operations, oversight, and timing (most notably, an official push back in compliance from 2012 to 2013);

  • The inclusion of quantitative data on benchmarking and allowance allocation;

  • New compliance and oversight mechanisms for the electricity sector; and

  • Modifications and clarifications on the regulation of offsets.

Public comment is open until August 11th. ARB staff is inviting stakeholders to provide comments on several specific issues. These include, among others:

  • The phasing in of various program elements in 2013 as opposed to 2012;

  • The sufficiency of the regulations new Voluntary Associate Entity category designed to provide opportunity for derivatives clearinghouse entities to participate in the market; Regulatory verification of early action offset credits;

  • Distribution of extra allowances collected for untimely surrender;

  • The new equation for calculating obligation of electricity deliveries from outside California; and

  • The exemption from compliance of waste-to-energy facilities.

These issues are explained in greater detail below, as are highlights of the proposed modifications in general and the new program timeframe for compliance. First, we offer some background on the cap-and-trade regulations within the framework of Californias climate change law, and the current status amid pending litigation that has received substantial publicity.

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