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California GHG Cap and Trade Program

California GHG Cap and Trade Program. Clare Breidenich Western Power Trading Forum. Overview. Background Program Scope Electricity Imports Allowance Distribution Market Rules Looking Ahead. Background. AB32. Reduce GHG emissions to 1990 levels by 2020

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California GHG Cap and Trade Program

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  1. California GHG Cap and Trade Program Clare Breidenich Western Power Trading Forum

  2. Overview • Background • Program Scope • Electricity Imports • Allowance Distribution • Market Rules • Looking Ahead

  3. Background

  4. AB32 • Reduce GHG emissions to 1990 levels by 2020 • Emissions to be further reduced after 2020 • Emission reduction measures to be in place by 1/2012 • Mandatory reporting and verification of GHG emissions • Must cover emissions from all electricity consumed in state • Authorizes market-based mechanisms, but does not require • Contains safety-valve

  5. Implementation Status • Regulation in force as of 2012 • Reporting • Registration • Auction • No emission obligation until 2013

  6. Cap and Trade Scope

  7. Program Scope • Declining annual cap on: • Electricity generation & imports, stationary combustion, energy-intensive manufacturing, petroleum refineries • As of 2015: Transportation fuels, & residential & commercial fuel consumption • CO2,CH4, N20, SF6, NF3, HFCs & PFCs • 25,000 MTCO2e annual emission threshold except non-specified power imports • Reported under Mandatory Reporting Rule • Voluntary participants: • Opt-in covered entities (incurs compliance obligation) • Voluntary associated entities (e.g. marketers, offset developers)

  8. Compliance Obligation • Capped entities must surrender compliance instruments to cover emissions • 3 year compliance intervals (first period 2 years) • Retire instruments equal to 30% of previous year emissions in first two years • Remainder after 3rd year • Failure to surrender sufficient compliance instruments by deadline: • Compliance instrument penalty equal to 4 times the excess emissions • One fourth of penalty instruments may be offset credits • May be additional financial penalties, which escalate after 45 days

  9. Treatment of Electricity Imports

  10. Electricity Imports • All power generated and imported to state subject to program, except • Specified imports from facility that is below 25,000 MMT annual threshold • Wheel-throughs and exports that can be netted against imports within same hour • Compliance obligation falls on entity that delivers power to California (“First Jurisdictional Deliver”) • PSE on NERC tag between balancing areas • Facility operators or scheduling coordinator if no tag

  11. Attribution of Emissions to Imports • Unspecified power assigned default emission rate • Initially set at .428 MT/MWH • Importers can claim facility - specific emission rate if • Facility is owned by or under contract to importer and registered as specified source, and • Power is directly delivered • Resource-shuffling prohibited • Defined as any plan, scheme or artificial to receive credit based on emission reductions that have not occurred, involving the delivery of electricity to the California grid. • Importers must submit annual attestation • Special emission rate for ‘asset-controlling suppliers’

  12. Renewable Imports • Direct delivery of renewable power treated as specified import • “RPS Adjustment” for firming and shaping power, if: • Importer has contract for procurement of renewable generation or importing on behalf of entity that does • RECs generated must be used for compliance with RPS in same year firm and shaped power is claimed • Renewable resource is not located in a capped jurisdiction • Firmed and shaped power has emission rate less than default • Else power gets difference between default rate and facility specific rate

  13. Allowance Distribution

  14. Allowance Distribution by Purpose • Annual Caps distributed to separate pools: • One-time Carve-out for Price Containment Reserve • Allocation to electric utilities • Allocation to natural gas utilities ( as of 2015) • Allocation for covered industry sectors • Set-aside for voluntary renewable energy purchases • Any remainder to auction

  15. Electric Sector Allocation • Allowances freely allocated to IOUs and POUs • IOUs must consign allowances received to ARB auction • Revenue must be used for consumer benefit, consistent with AB32 goals • POUs may consign to auction or retain to cover own compliance obligation • Generators, importers (including IOUs and other retail providers) must purchase allowances through auction or secondary market

  16. Allowance Auctions and Sales • Consignment auction: • Utility-allocated allowances • Advance auction of future vintages • Price Containment Reserve (PCR) Sales: • Set-aside from annual caps • Penalty allowances • Auctions & PCR sales held quarterly • First consignment auction planned for August 15, 2012 • PCR sale 3 weeks after consignment auction

  17. Consignment Auction • Format: • Sealed bid, single-round, uniform clearing price • Lots of 1000 MT • Different vintages auctioned separately • Auction Reserve price: $10/ ton initially • increases 5% annually + inflation • Open to all market participants • Must register 30 days prior • Financial assurance through bid guarantee • Purchase limits • 15% of auction volume for capped entities • Does not apply to IOUs • 4% for voluntary associated entities

  18. Price Containment Reserve • Allowances sold from three equal-sized tiers: • Prices initially set at $40, $45 and $50 per ton • Increases 5% annually plus inflation • Only entities with compliance obligation may purchase • Allowances must be used for compliance • No purchase limits • Proceeds from PCR sales go to Air Pollution Control Fund

  19. Market Rules

  20. Transaction Rules • Holding limit on allowances (not offsets) for all participants • Set relative to annual cap; 6.02 MMT in 2012 • Does not apply to allowance in compliance accounts up to level of compliance obligation (emissions to date) • No restrictions on secondary transfers of allowances • Unlimited banking of allowances and offsets (subject to holding limit)

  21. Use of Offsets • Limited use of offsets from California and other programs • 8% of compliance obligations • Of which ¼, increasing to ½, can be sectoral • Offsets subject to potential invalidation (buyer liability) up to 8 years after issuance • Currently approved offset categories • forestry; urban forestry; livestock management; and removal of ozone-depleting substances

  22. Market Oversight • All participants must register in tracking system: • Disclosure of direct or indirect corporate associations & beneficial holdings • Applies for auction purchase limits and holding limits • General prohibition of manipulative or fraudulent behavior • Independent entity to be hired to monitor and report to CARB on functioning of market and behavior of participants

  23. Looking Ahead

  24. Expectations for 2012 • Formal Rule-making • Linkage of the California and Quebec systems • Revisions to cap and trade regulation • Resource-shuffling? • Additional offset protocols • Infrastructure development & implementation • Tracking system registration, testing and training • Market simulation • Allowance allocation and auction • Legal Challenges? • Peabody Energy • Treatment of Electricity Imports • Other

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